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Without the right numbers, investors would never know Peloton is making money

The At-Home Revolution boosted Peloton’s (PTON) performance with its stationary workout bikes and classes becoming a massive hit. Today’s FA Alpha Daily will unveil the company’s profitability post-pandemic.

FA Alpha Daily: 
Thursday Uniform accounting analysis
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When the pandemic first hit, gyms shuttered their doors. Many people missed their group workout classes, so they turned to Peloton (PTON) for a way to get that same experience without leaving their homes.

Peloton offers stationary workout bikes that come with a steep price tag of just under $2,000. But consumers were willing to pay this large fee, along with a monthly subscription fee for classes, because of the sense of community it provided when everyone was stuck inside.

However, gyms have since opened up and workout classes are at full capacity, meaning the At-Home Revolution for working out is winding down.

This means Peloton is under pressure. Its stock fell from a peak of $163 to just above $12, which is well below pre-pandemic levels. Meanwhile, the firm recently announced plans to cut more than 2,800 employees to reduce expenses.

In an effort to keep customers, it recently slashed the prices of its bikes by about $500, depending on the model, and raised monthly subscription fees by $5. The company hopes that by lowering the price of the bike, they can attract more customers and expand their market share.

However, many people are saying Peloton was never even profitable in the first place, and that the trouble the company is facing now was bound to happen.

As-reported metrics make it appear that’s the case. While Peloton saw a substantial improvement in return-on-assets (“ROA”) in 2020, it appears it still wasn’t profitable. As-reported metrics show us Peloton rose from -21% in 2019 to just -1% in 2020. Since then, ROA has slightly slipped to -2%.

Peloton was at the forefront of the At-Home Revolution, yet it still couldn’t turn a profit, which leaves people wondering if it will ever be able to.

However, Uniform metrics show us a different story.

Peloton has actually been profitable. ROA inflected positively from -32% in 2019 to 4% in 2020, and saw further improvement in 2020, reaching 7%.

If Peloton can manage its costs and hold onto subscribers, it has the potential to remain profitable. While it might not be a great business, it is a real business, and Uniform metrics shows it makes money.

So even though the At-Home Revolution is past its prime, Peloton isn’t necessarily dead. Thanks to UAFRS, investors can begin to understand if Peloton is interesting, before writing it off out of hand.

Uniform Accounting provides the right tools for investors to unlock the real value that the company offers. To learn more about how to gain access to the real numbers for almost 25,000 companies around the world, click here to read about our Uniform Accounting database.

SUMMARY and Peloton Interactive, Inc. Tearsheet

As the Uniform Accounting tearsheet for Peloton Interactive, Inc. (PTON:USA) highlights, the Uniform P/E trades at -17.2x, which is below the global corporate average of 20.6x, and its own historical P/E of 9.9x.

Negative P/Es require high EPS growth to inflect to positive levels. In the case of Peloton, the company has recently shown a 256% growth in Uniform EPS.

Wall Street analysts provide stock and valuation recommendations that in general provide very poor guidance or insight. However, Wall Street analysts’ near-term earnings forecasts tend to have relevant information.

We take Wall Street forecasts for GAAP earnings and convert them to Uniform earnings forecasts. When we do this, Peloton’s Wall Street analyst-driven forecast is a 676% and 82% EPS decline in 2022 and 2023, respectively.

Based on the current stock market valuations, we can use earnings growth valuation metrics to back into the required growth rate to justify Peloton’s $13 stock price. These are often referred to as market embedded expectations.

The company is currently being valued as if Uniform earnings were to grow by 42% annually over the next three years. What Wall Street analysts expect for Peloton’s earnings growth is well below what the current stock market valuation requires through 2023.

Furthermore, the company’s earning power in 2021 is in line with the long-run corporate average. However, cash flows and cash on hand are below its total obligations—including debt maturities and capex maintenance. All in all, this signals moderate credit risk.

Lastly, Peloton’s Uniform earnings growth is well below its peer averages, and the company is also trading below its average peer valuations.

Best regards,

Joel Litman & Rob Spivey

Chief Investment Strategist &
Director of Research
at Valens Research

The Uniform Accounting insights in today’s issue are the same ones that power some of our best stock picks and macro research, which can be found in our FA Alpha Daily newsletters.

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