This business has been struggling like no other, but its shares are cheap.
When consumers were looking for ways to work out from the comfort of their homes during the pandemic, Peloton Interactive (PTON -3.85%) saw demand pick up dramatically. However, the company has been facing some serious challenges after that boom period. Leadership changes have occurred, and the goal of growing sales and getting to profitability has not changed.
As of this writing, the consumer discretionary stock trades at a gut-wrenching 98% off its peak price. This might have caught the attention of risk-seeking investors. Perhaps Peloton’s most bullish supporters believe it can skyrocket more than the “Magnificent Seven” stocks over the next five years.
Trying to get in shape
We’re a long way from when Peloton was registering monster triple-digit sales gains. During the fiscal 2024 third quarter (ended March 31), the company generated revenue of $718 million. That represented a 4% year-over-year decline, continuing a streak of negative sales trends. It’s no surprise that the executive team’s top priority is to drum up demand, whether through a rental program, retail and content partnerships, or an upgraded digital app.
Even when Peloton was on top of the world, it never reported positive net income in any single fiscal year. With revenue falling, losses have climbed. In Q3, the business posted a net loss of $167 million. This did come down from the fiscal 2023 third quarter, but it’s a long way from profitability.
The only positive attribute from an investment perspective is the stock’s dirt cheap valuation. It trades at a price-to-sales ratio of under 0.5. Shares have rarely been any cheaper than this.
Expectations are so low for Peloton that any signs of improvement could send the valuation multiple and the stock soaring in no time. This is precisely what the bulls are hoping can happen, even though the chances seem alarmingly slim.
Magnificent characteristics
While the upside might be massive, the probability of Peloton improving its situation is extremely low. “Turnarounds seldom turn,” the great investor Warren Buffett once said. This makes me believe without hesitation that all the “Magnificent Seven” stocks will do better than Peloton between now and June 2029.
Just take a closer look at these companies. Because it sells mission-critical software solutions, Microsoft can count nearly every business out there as its customer. Not only is it arguably the strongest brand on Earth, Apple‘s iPhone is probably the most successful hardware product of all time.
Alphabet and Meta Platforms own and operate the world’s most widely used internet properties. These businesses benefit from powerful network effects.
Tesla‘s latest challenges are well documented. But no one can argue that it has been a major disruptor to the auto industry. Nvidia is the poster child of the artificial intelligence boom, providing the infrastructure for its customers that supports the rise of this revolutionary technology. And we can’t forget about Amazon, which has a notable presence in various industries like e-commerce, cloud computing, and streaming entertainment.
Knowing just how dominant these seven companies are should make you seriously question why Peloton should even be mentioned in the same sentence as them. In my opinion, all of the “Magnificent Seven” constituents make for smarter investment opportunities than the struggling fitness enterprise.
If we look out over the next five years, I think there’s a meaningful chance that Peloton doesn’t even exist in its current form. Its survival as a business is a huge question mark, unless it’s able to drastically turn things around. Investors hoping Peloton can outperform some of the world’s most dominant and innovative companies should think twice.
Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. 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, Apple, Meta Platforms, Microsoft, Nvidia, Peloton Interactive, and Tesla. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
