The leader in interactive exercise equipment peloton (NASDAQ: PTON) Struggling with economic reopening. The company saw a surge in demand for home exercise equipment when economies were in various stages of shutdown. Many gyms were closed, and people were reluctant to visit those that were open for fear of contracting COVID-19.
Now that billions of doses of an effective vaccine against the virus have been administered, people are more willing to exercise in gyms and other places away from home again. This trend is halting Peloton’s surging yield growth and has investors worried. However, the stock price has collapsed enough to make Peloton an excellent prospect for long-term investors. Here are several reasons.
1. Huge revenue growth
Peloton machines have been so popular during the pandemic that it is easy to forget about the company’s success before the outbreak. From 2017 to 2019, Peloton increased its revenue from $219 million to $915 million. Of course, the pandemic has set the fuel on fire, doubling revenue in 2020 to $1.8 billion before doubling again in 2021 to $4 billion. In a few short years, Peloton expanded its revenue nearly twenty-fold.
This growth is driven by the convenience of exercising at home versus going to the gym. Depending on your location, you can finish a Peloton workout session in less time than it would take to get to your gym.
However, investors remain concerned about slowing revenue growth as economies reopen. Peloton management is directing investors to look for revenue of about $4.6 billion in 2022, which would be its lowest growth rate in any year in the company’s history.
2. A bold goal
However, management remains optimistic and envisions a huge opportunity for connected home exercise devices. The big long-term goal for Peloton is to reach 100 million subscribers. To put that number in context, as of the last quarter ending September 30, Peloton had 2.49 million connected fitness subscriptions. That was an 87% increase from the previous year.
Peloton’s plan to reach this goal includes geographic expansion, product innovation, and more affordable pricing. In its last quarter, it also implemented two plans by launching a new treadmill in a new country, Germany.
This follows action it took two quarters ago to lower the price of its popular stationary bike from $1,895 to $1,495. The low price actually helps in attracting customers who were on the sidelines due to the affordability.
3. Favorable price
The massive collapse in stock prices in Peloton has now traded at a price-to-sales ratio of 2.6. This is about one-tenth of the proportion in late 2020.
Admittedly, the administration hasn’t done a great job in responding to the outbreak. It was slow to adapt to the increasing demand, which led to customer complaints about slow and canceled deliveries. Then over-corrected by the addition of large capacity, which drove up costs amid sluggish customer demand.
However, Peloton continues to grow in revenue, has a huge opportunity to serve one hundred million exercisers, and is trading at a huge discount. For these reasons, the reward is now worth the risk of buying Peloton shares in 2022.
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