Why Peloton stocks are struggling today
Fitness Equipment Manufacturer Shares Interactive Platoon (PTON -1.26%) are down 2% as of 12:26 p.m. ET Monday, after partially recovering from an early decline of just over 6%. The setback follows a firm gain on Friday prompted by the announcement of cost-cutting measures and price increases.
Think of it as a case of buyer’s remorse, with a bit of market-wide lethargy also playing a part. With a full weekend to mull over Friday’s news, in addition to reignited concerns that a recession remains a distinct possibility, discretionary stocks like Peloton Interactive remain vulnerable.
On Friday, Peloton announced price increases for its Peloton Bike+ treadmill and Tread in several key markets. In the United States, for perspective, the cost of the Bike+ will increase from $1,995 to $2,495, while the sticker price of the Tread will increase from $2,395 to $3,495. The price increase follows July’s decision to fully outsource production of its fitness equipment to third-party manufacturers as part of a cost-cutting effort. This news immediately preceded a reversal in the stock’s downtrend that eventually reversed more than 90% of its peak value reached in early 2021 during the worst of the COVID-19 pandemic.
Separately, Reuters reported on Friday that a company memo said job cuts were looming. In total, about 800 jobs are at risk and some of Peloton’s 86 retail stores could be closed.
Investors celebrated the announcements, believing the moves will put the company back on the path to profitability, which was only briefly achieved in late 2020 when consumers stuck at home were buying fitness equipment in droves. .
It would be easy to attribute today’s weakness to simple profit taking after Friday’s 13.6% bullish run. The market itself is also not in the same bullish mood it was last week. So many investors can still see more potential for the stock. And maybe that’s what’s in the cards.
More realistically, however, there is more work against Peloton Interactive here than there is work for it, despite the stock rallying from last month’s lows.
Peloton is clearly on the defensive here. Cost cutting is not an indication of strength, especially when it undermines an organization’s ability to sell its product…such as store closures or the loss of sales and support staff. Likewise, while having third parties manufacture your product can reduce costs, it also makes it more difficult to control quality, as well as to control exactly when the product is made. Factor in the lingering prospect that the economy could continue to show signs of slowing – crimping demand for high-end exercise equipment – and Peloton stock brings more risk than reward potential to the table right now.
James Brumley has no position in the stocks mentioned. The Motley Fool holds positions and recommends Peloton Interactive. The Motley Fool has a disclosure policy.