What's Going On With Peloton Interactive Stock Wednesday

Peloton Interactive Inc PTON shares are trading lower after Wolfe Research downgraded the stock rating. Analyst Zach Morrissey downgraded Peloton from Peer Perform to Underperform and a $6 price target.

The analysis underscores that Peloton (PTON) experienced significant benefits during the pandemic but has since seen a sharp decline in demand. The stock has already decreased by approximately 95% from its peak, but Morrissey suggests further downside.

The reasons for the further downside are lower long-term (LT) demand for at-home fitness equipment as consumer behavior reverts to pre-pandemic patterns, lack of conviction in new strategic initiatives taken by Peloton, unclear long-term profitability, and a shaky liquidity position.

The analyst also notes that the unit economics of the business are eroding due to new strategic initiatives and limited pricing power. Growth initiatives like FaaS and Digital are still a work in progress, and their ability to contribute to sustained growth and profitability is uncertain.

Morrissey suggests a discount in the hardware (h/w) multiple relative to h/w comps and implies low-to-mid teens long-term non-GAAP EBIT margins. He also highlights that PTON's valuation on an EV/sub (enterprise value per subscriber) basis currently trades at a significant premium compared to its peer group.

Price Action: PTON shares traded lower by 7.38% at $7.65 on the last check Wednesday.

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