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Peloton stock is 30% undervalued: analyst

·Anchor, Editor-at-Large
·2 min read
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Despite elevated concerns about its near-term profitability amid treadmill recall costs and higher supply chain expenses, the Street continues to defend Peloton's stock. 

The latest hot take came Wednesday from Stifel analyst Scott Devitt.

"We estimate current penetration within existing markets remains low, at just 3.4% in the U.S. and significantly lower in international markets. We continue to see multiple drivers for near-term growth as Peloton invests behind the recent Bike price reduction and the reintroduced Tread. Longer term, we see ongoing international expansion and new hardware opportunities as drivers of sustainable growth," Devitt said in a research note to clients

The analyst left his financial projections on Peloton (PTON) mostly unchanged. But, he did slash his price target to $120 from $140. 

Added Devitt, "Peloton is taking share across the fitness equipment category, in our view, and remains well positioned to continue doing so and expand the market as it drives innovation in the industry and business model. We expect Peloton's annual growth rate over the next five years to reward current valuation multiples due to continued core product momentum, new product offerings, and geographic expansion."

Out of the 31 sell-side analysts that cover Peloton's stock, 74% rate it a Buy, according to Bloomberg data. The average analyst price target is $128. 

Suffice it to say, market goers have staked out a rather different take on Peloton's stock than the analysts who cover the company. 

Shares of Peloton have plunged 45% to $85 so far on the year. The stock is down 49% since hitting a 52-week high on Sept. 13.

The sell-off could be traced back to several factors, excluding the company's highly publicized treadmill recall.

Peloton said in August it would cut the price of its bike by $400 to $1,495 as it focuses more on gaining new subscribers than driving profitability. The original price of the bike was $2,245 as of September 2020, just before it released a higher end version.

Meanwhile, the company saw a slowdown in subscriber growth in its most recent quarter that ratcheted up concerns about increased competitive pressures.

"When companies have little competition, they don't need to market or promote. When competition arises, so does the need for marketing and discounts. Competition is growing and Peloton's second price cut in a year coupled with higher marketing may speak more to materially higher inventory and competition than to its democratizing of fitness," said BMO Capital Markets analyst Simeon Siegel

Siegel is the lone analyst on the Street with an Underperform rating on Peloton's stock. 

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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