I'm Running Away From My Peloton Position After Loss
Amid broader warnings about the market, I am reexamining my portfolio and it's time to exit this name.
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Only about 10 days ago, I wrote to you concerning Peloton Interactive PTON after the firm reported its fiscal second quarter earnings.
Peloton had reported a GAAP EPS of -$0.24 on revenue of $673.9 million. The earnings print fell about a nickel per share short of consensus view. The sales print did actually beat Wall Street but still reflected a year-over-year contraction of 9.4%. What impressed me (and still does) was in the guidance. The firm increased its full fiscal year guidance for adjusted EBITDA from $230 million to $290 million to $300 million to $350 million and took the firm's target for full-year free cash flow from $125 million to "at least" $200 million.
In addition, the firm was able to reduce its total debt load by more than $190 million on a year-over-year basis and cut net debt by 30%. I find that truly impressive. Few things warm my heart more than improving fundamentals and visible fiscal discipline.
Heck, self-discipline of any kind is one way to get me on your side. So, I got into Peloton. Then I added once. My net basis is $8.23. That puts me down something like 19%. Some readers may say, "What about your 8% rule, Sarge?" I would remind readers that my 8% rule is flexible for stocks that trade under $10 as price swings in percentage terms can be quite large without actually amounting to a whole lot of dollars and cents.
That Said...
This position is getting expensive. Over the weekend, I was down "just" 8.5%. On Monday's GDPNow revision by the Atlanta Fed, I lightened my book. Kind of a lot. That was ahead of the president's comments on tariffs, fortunately.
Just as fortunately, I am an old man, and as an old man, a large percentage of my investable assets are in bonds and real estate. The bonds are humming, and since around mid-January, have more than offset my equity market losses since mid-February.
As for "stocks under $10," my purge included Energy Fuels UUUU and Vera Bradley (VRA). Both had hit self-imposed panic points. Now, I must get serious with PTON. My first instinct was to add on weakness. One has to be real sometimes and recognize that the technical pattern that had been the basis for my trade in PTON is now broken.
The Chart
Readers will see in this chart of Peloton a cup-with-handle pattern with a $10.25 pivot. Well, the handle is now obviously not a handle at all.
The last sale is lower than the depth of the cup pattern and now stands at greater than a 50% retracement of the stock's late July to December rally. For what it's worth, I see PTON testing its 200-day SMA down around $6.04. Will I consider a re-entry down there if that level is reached? Of course. Until then though, its adios, Peloton. I've got some capital to preserve.
At the time of publication, Guilfoyle was long PTON equity.
