New Peloton Price Target, Panic Point as Wall Street Braces for Contraction
The exercise firm is facing some clear expectations from stock analysts as it prepares to report.
You're reading 0 of 1 free page.
Register to read more or Unlock Pro — 50% Off Ends Soon
Back in March, I gave you one of my "Stocks Under $10" stocks that so far has not worked quite as well as some of my better SU$10 calls (namely, Palantir Technologies PLTR and Rocket Lab USA RKLB, both of whom are having tough Mondays as the broader market takes its lumps).
That name is Peloton Interactive PTON. The stock has come in since I wrote those two pieces in March. Though I don't really hold myself to my 8% rule with $5 stocks the same way that I do with larger caps and higher prices issues, I still notice and act in some way when one of my little guys hit that negative milestone.
For the current quarter, which will be reported in about 10 days, Wall Street is looking for an adjusted EPS of -$0.06 or a GAAP EPS of -$0.04 on revenue of $621 million. On a year-over-year basis, this would indeed reflect a sales contraction of 13.5%. However, due to the firm's efforts to improve its own fiscal discipline and shift from hardware to subscription services, that adjusted earnings print would be an improvement from -$0.45 for the year-ago comp.
I know that I've mentioned this in the past as well. Since the current quarter started, 12 of the 13 analysts I know of that track the stock have increased their earnings estimates as consensus started the quarter at -$0.13.
Remember...
This is easy to forget with firms like this, but Peloton's balance sheet is not nearly as weak as many may believe. As of the end of the December 2024 quarter, the firm had a cash position of $829 million and current assets of $1.308 billion. That included $257.8 million worth of inventories, whose value, especially in a weaker economy, could be considered questionable. Current liabilities ended the period at $634.7 million including almost no short-term debt (that's huge) and $80.7 million worth of unearned revenue (not a true financial liability).
This put the firm's headline current ratio at a rather robust 2.06 and its current ratio at a strong 1.65. Once adjusted for those unearned revenues, these ratios improve to 2.36 and 1.89, respectively.
Total assets amounted to $2.11 billion, including a negligible number for any intangibles. Total liabilities less equity came to $2.607 billion, including long-term debt of $1.489 billion. This is not an emergency, as all of the firm's debt is long term in nature, but as we have discussed in the past, at some point this debt will have to be worked on. Thankfully, Peloton has had four consecutive quarters of positive free cash flows, which is how firms in this situation address issues such as this.
The Chart
Some readers may recall the cup-with-handle pattern that we discussed in early March that did not work out. Turns out that the handle has developed into a falling-wedge pattern. Readers will see that even as the shares sell off over the past few sessions, PTON is pushing up against the upper trendline of the wedge in an effort to break out.
Perhaps that cannot happen in this environment. That said, that does not mean that I cannot use this sell-off to add to a stock priced in the middle single digits that I think has the cash flows and balance sheet to rescue itself. We're going to add, while we adjust our pivot and target, and then move on from there.
Peloton Interactive (PTON)
Target Price: $8.25 (down from $10)
Pivot: 200-day SMA (currently $6.50)
Add: Down to the lower trendline of the wedge (currently $4.40)
Panic: Loss of wedge support
At the time of publication, Guilfoyle was long PTO, RKLB and PLTR equity.
