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The stock downgrade comes amid the unprecedented run-up over the last year as the COVID-19 pandemic fueled the fitness-from-home business. Peloton also faces a major challenge ahead of delivering fitness equipment to its customers.
On Tuesday, January 19, shares of American exercise equipment company Peloton Interactive Inc (NASDAQ: PTON) tanked 4.86% after wealth management giant UBS downgraded the stock to sell from neutral. As of Tuesday closing, PTON stock was trading at $150.14 with a market cap of $43.92 billion.
UBS said that there’s a downside risk for investors from the current levels citing unprecedented run-up over the last year. Over the last year, PTON stock has grown 5x with a massive 400% price rally. In a recent note to clients, UBS analyst Eric Sheridan said:
“Given recent market activity, we think investors need to be wary of the rising trend of bull market optimism in a handful of businesses that have been either Covid-19 ‘beneficiaries’ and/or have come to the public markets in the last 6-18 months.”
Also, UBS is not the only player to downgrade Peloton in recent times. Three months, Wall Street banking giant Goldman Sachs downgraded the stock to “neutral” from “Buy”. Interestingly, UBS has raised its price target for the PTON stock to $124 from the previous $115. UBS is confident that in the long term, Peloton has a good opportunity to “disrupt the traditional fitness business models”.
Peloton Confident about Fitness-from-Home Shift amid PTON Stock Drop
The COVID-19 pandemic serves as a catalyst for the fitness equipment manufacturer as there was a major shift towards fitness-from-home. However, despite seeing incredible growth in sales, Peloton has struggled to execute its orders on time. Its customers have been arguing about getting late deliveries for weeks.
To allay some of its supply issues, Peloton recently purchased another fitness equipment manufacturer Precor in a whopping $420 million deal. However, it is likely to take some time for the results to reflect and get its supplies in line with the demand. UBS analyst Sheridan said that investors are seeing it differently. He adds:
“The current valuation reflects a high level of confidence from investors on Peloton’s ability to deliver outsized operating results (especially amid logistics/operational challenges…)”.
Now, with the world coming back to normalcy will it affect the fitness-from-home industry and players like Peloton? Well, not so much. A CNBC report states that companies like Peloton, Lululemon, and Apple think that the pandemic has permanently changed how people will exercise from home. The report also notes that the numbers seem to be backing their claims.