Is Peloton Stock Overvalued Or Undervalued?

Peloton Interactive Inc PTON shares have lagged the S&P 500 in 2021, generating a year-to-date total return loss of 77.2%.

Peloton’s stock has had a wild ride this year, but investors may be wondering whether there’s any value to be found in Peloton shares after the sell-off.

Earnings: A price-to-earnings ratio (PE) is one of the most basic fundamental metrics for gauging a stock’s value. The lower the PE, the higher the value.

For comparison, the S&P 500’s PE is currently at about 30.5, nearly double its long-term average of 15.9. Peloton doesn’t currently have a PE ratio because the company is not profitable. In the most recent quarter, Peloton reported a $376 million net loss.

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Growth: Looking ahead to the next four quarters, the S&P 500’s forward PE ratio looks much more reasonable at just 21.3. Unfortunately, analysts are not expecting Peloton to turn a profit over the next four quarters.

The current consensus earnings per share estimate for Peloton for fiscal 2023 is a per-share loss of 84 cents. Peloton’s consumer discretionary sector peers are currently averaging a 31 forward earnings multiple.

Yet when it comes to evaluating a stock, earnings aren't everything.

The growth rate is also critical for companies that are rapidly building their bottom lines. The price-to-earnings-to-growth ratio (PEG) is a good way to incorporate growth rates into the evaluation process. The S&P 500’s overall PEG is about 1.0. Once again, without positive earnings, Peloton doesn’t have a positive PEG ratio to use as a valuation gauge.

The price-to-sales ratio is another important valuation metric, particularly for unprofitable companies and growth stocks. The S&P 500’s PS ratio is 3.26, well above its long-term average of 1.63. Peloton’s PS ratio is 2.72, below the S&P 500 average. However, Peloton's PS ratio is also down roughly 45.2% over the past two years, suggesting the stock is priced at the low end of its historical valuation range.

Finally, Wall Street analysts see value in Peloton stock over the next 12 months. The average analyst price target among the 27 analysts covering Peloton is $72, suggesting about a 91.3% upside from current levels.

The Verdict: At today's price, Peloton stock appears to be slightly undervalued based on a sampling of common fundamental valuation metrics.

Photo: Courtesy Peloton