What happened
Shares of Peloton Interactive (NASDAQ: PTON) jumped on Tuesday, following positive analyst commentary. As of 3 p.m. ET, Peloton's stock price was up more than 10%.
So what
With its share price still down roughly 80% over the past year, Bernstein analyst Aneesha Sherman believes that many of the risks inherent in an investment in Peloton are now priced into its stock. Traders have bailed on the fitness equipment maker as its growth has stalled. But Sherman thinks the market has become too pessimistic in its view of Peloton, which is creating a profit opportunity for patient investors.
Sherman argues that Peloton's core business still has several attractive qualities, including a loyal and engaged user base, subscription-based recurring revenue, and an enormous market opportunity.
The analyst placed an outperform rating and $40 price forecast on Peloton's shares. If she's correct, shareholders could enjoy gains of nearly 80% from the stock's current price near $22.25.
Image source: Peloton Interactive.
Now what
Peloton enjoyed booming demand for its exercise bikes and treadmills during the early stages of the pandemic. Its stock price soared along with its sales.
However, Peloton's sales peaked as the economy reopened. People returned to gyms and resumed outdoor fitness activities, leading to a sharp drop-off in demand for Peloton's home-based exercise equipment.
Yet Sherman could be correct that Wall Street has become overly bearish on Peloton's long-term prospects. If the company can right-size its equipment production and drive growth via its new all-in-one subscription pricing plans for its bikes and workout classes, Peloton's stock price could rebound toward Sherman's price target.
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Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool owns and recommends Peloton Interactive. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
