This company’s challenges are simply too hard to ignore.
With the stock market at record highs, you’d think the vast majority of companies would thrive. However, this is not the case, as there is a wide range of results from businesses in all different industries.
Consequently, some companies continue to struggle mightily with no end in sight, even though the economy has remained resilient. Here’s a business that fits this category that I wouldn’t touch with a 10-foot pole. And I don’t think you should, either.
Struggling with growth and profitability
Shares of Peloton Interactive (PTON 2.67%) currently trading 98% off their peak price, a milestone reached in January 2021. While this was one of Wall StreetThe hottest stock during the pandemic has since become one of the most disappointing. And that’s because of ongoing challenges that don’t seem likely to be resolved anytime soon.
Let’s start with the request. Peloton is struggling to grow its revenue. During the third quarter of fiscal 2024 (ended March 31), the business reported sales of $718 million, which was down 4% year over year. This marked the ninth straight month of decline, clearly not an encouraging sign. And this figure was significantly lower than three years ago in Q3 2021.
It’s no shock to anyone that as economies began to open up and consumer behavior normalized, Peloton would experience a downturn. In other words, the request was probably pushed forward. This is understandable, and it’s something that many Internet-enabled businesses saw at the time.
But what’s really alarming is that the Peloton just hasn’t recovered. Its fitness-related subscriber base is flattening, showing how difficult it has been to sell more of the company’s expensive exercise equipment. And that’s despite launching a bike rental program in 2022, as well as entering distribution deals with the e-commerce juggernaut Amazon and brick and mortar retailers Dick’s Sporting Goods.
And the business remains in terrible financial shape. While driving top-line growth is clearly a big issue, Peloton’s survival is in question. Doesn’t look close to posting a profit anytime soon.
The net loss reached $167 million in the last fiscal quarter. The new management team has initiated significant cost cutting, which is the right move. However, it’s anyone’s guess when things will change.
A high risk situation
A reasonable investor might still consider buying shares in this troubled enterprise. Peloton’s market cap of $1.2 billion is less than half of its trailing 12-month revenue of $2.7 billion. These stocks have taken such a beating that it’s impossible to find an ounce of optimism as we look to the future. Deep value investorsespecially those with a certain level of comfort with high-risk situations can take a chance on Peloton.
I am not one of those people. I don’t have the ability to accurately predict when, or if, Peloton will go the right way. And I’ll gladly switch to stock.
What I’ve learned from watching Peloton over the past few years is that it’s best to focus on identifying businesses that consumers can’t live without. What if Peloton simply ceased to exist? Of course, some of the company’s most loyal customers would be upset. But there are an unlimited number of ways to find out that the gap will be easily filled.
On the other hand, think about Alphabet OR Visa, for example. They are so vital to our daily lives that we cannot imagine our world without them. Peloton is not part of this elite group. And that’s another reason I won’t touch the stock with a 10-foot pole.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Peloton Interactive and Visa. The Motley Fool has a disclosure policy.