Can Peloton’s share price really bounce back?

Peloton’s [PTON] share price looked like it had been dealt a fatal blow in November. Disappointing earnings, the market seemingly bottoming out of at-home fitness, and people hitting the gym, all conspired against the stock. Not helping things were slashed earnings forecasts and a spate of analyst downgrades.

Yet while the Peloton share price might be down, it is not out. The stock has seemingly found a second wind, powering 15% after the company announced a plan to sell off $1bn in stock, something that would normally weigh on a share price.

So is Peloton’s share price now a bargain, or is it about to fall further?

What’s happening with Peloton’s share price?

Peloton’s share price may have bounced on sell-off news, but Thursday last week saw the stock drop over 7%, with a further 2.6% fall on Friday.

Since the start of November, Peloton’s share price has plummeted over 47%, going from around $91 to close Friday at $47.14. The catalyst is Peloton heavily slashing its full year guidance from $5.4bn to  between $4.4bn and $4.8bn. For investors who had bought into the stock during the working from home boom last year, the recent drops will have left a bad taste in the mouth considering that on 4 January Peloton’s share price was trading at around $152.

A fight back to that level looks unlikely - at least going off analyst price targets - but with the stock trading at a point last seen in June last year, some may be tempted to pick up the stock on the cheap.

What the sell-off could do for Peloton’s share price

Bloomberg suggests that the stock sale is the equivalent of putting a for sale sign on the stock. Apparently Apple [AAPL] is in the running to pick up the firm. And while Bloomberg notes that a ‘laughable’ number of companies are linked to an acquisition by Apple, this time it might make sense. After all, Apple is moving further into fitness through its Apple Watch and Apple Fitness+ products.

The Motley Fool’s Danny Vena suggests that the selloff will add cash to Peloton’s balance sheet and buy the firm time to recalibrate its strategy. Vena notes that Peloton had $1.6bn in cash and marketable securities at the end of the previous quarter, which had deteriorated to $924m in the company’s most recent results.

Another alternative could be Peloton raising capital to push forward its acquisition strategy. In April, the company bought Precor for $420m, although given the cash burn investors probably won’t be best pleased if this was behind the stock sale.

Where next?

How much credence investors should pay to these theories is debatable. But what is true is that following the pandemic there is still a market for at-home exercise products like Peloton - just that market isn’t as big as some analysts had predicted last year.

Peloton’s results were dismal. Having to cut full year guidance by an eye-watering $1bn is clearly not a good thing. Burning through cash is also not great - $284.3m was spent in the most recent quarter on sales and marketing last quarter. But when it comes to analyst forecasts, even the slashed price targets still represent a decent upside on Friday’s close.

Analysts at Truist downgraded Peloton from Buy to Hold after the dismal earnings results, heavily cutting their price target from $120 to $68. JPMorgan removed Peloton from its focus list and slashed its price target from $138 to $90, although analysts there note that a good performance over the festive season could help.

To get a true sense of where Peloton is heading could take a couple of quarters, according to Stifel Nicolaus analyst Scott W.Devit, with limited ‘near-term upside’ on Peloton’s share price. Devit has a $70 price target on the stock, slashed from $120 following the disappointing earnings report.