Peloton Interactive (PTON -5.86%) The stock is down 78% in 2022 as the downward spiral continues. But since the beginning of the year, his stock has risen a whopping 40% (as of this writing). Perhaps investor sentiment for this troubled business is finally turning positive?
not so soon The most astute investors know there’s a big problem with the former Wall Street darling. Here’s what you need to know about Peloton. rest of 2023I wouldn’t hesitate to become a stock buyer right now.
Peloton has inventory issues
Peloton’s sales and subscriber numbers surged as a result of the coronavirus pandemic, which made working out at home the de facto choice for most consumers. But as the impact of the pandemic abates, the business has reported three consecutive quarters of revenue declines of more than 20% year-on-year, the latest being the first quarter of fiscal 2023 (ending Sept. 30). am.
It only gets worse. Management, led by CEO Barry McCarthy, said he expects second-quarter revenue to decline 37% from the same period last year, while the connected fitness subscriber base is up just 8%.
Predicting that pandemic demand would last indefinitely was the biggest mistake of previous leadership teams. This resulted in excessive hardware inventory. As of Sept. 30, Peloton’s balance sheet had the largest asset category, his $993 million in inventory. It consists of apparel, accessories, and exercise equipment, all of which depreciate with each passing day.
In fact, each quarter, Peloton writes down what items it thinks it can’t sell at a particular price, or what part of its inventory it thinks it can’t sell. In the most recent fiscal quarter, inventory reserve balances totaled $280 million. Management has broken down the numbers in its quarterly reports.
As of September 30, 2022, the Company recorded $124.9 million of inventory holdings primarily related to excess accessories and apparel inventory that it does not plan to sell beyond its current carrying value. The company has no plans to sell and has his $41.9 million reserves for components that are estimated to have no future use.
High interest rates, rising inflation and general macro uncertainty have hit the peloton hard.people just please do not We want to increase our bike, tread or row totals by more than four figures in this type of economic environment. This means that even if the manager believes that the inventory balance will collapse,
This is bad. Not only does it tie up cash, but it also increases the likelihood that these products will become obsolete over time as Peloton introduces new versions of its connected fitness lineup. Going forward, a more cautious approach is required.
stock should be avoided
Unless the revenue and connected fitness subscriber base start growing rapidly again, I see no reason why investors should take the risks involved in buying this stock. Indeed, Peloton shares are now Selling price The multiple is just over 1.0, well below the historical average of 6.3. But there are too many uncertainties in the peloton outlook.
Liz Coddington Chief Financial Officer Liz Coddington said: “I was going to say that we’ve seen some research showing that the economy is a headwind for us, as it is for many other companies. ‘ said. First Quarter of Fiscal Year Financial results announcement“And that’s now impacting near-term demand for connected fitness hardware.”
Having stopped providing full-year guidance, even management has tacitly admitted that it doesn’t know much about the at-home fitness market this year. How can a retail investor with so little information have any idea?
If at some point in the future Peloton can right-size its business by increasing demand and reducing net losses, we may need to take a closer look. am.
Neil Patel has no positions in any of the mentioned stocks. The Motley Fool recommends Peloton Interactive. The Motley Fool’s U.S. headquarters has a disclosure policy.
