Peloton (PTON) stock has more than tripled since May, when it plunged below $3 to record lows. The stock is now up 65% YTD, and is outperforming the broader markets. PTON’s 2024 price action is a welcome break for investors, who have only seen the shares go downhill since early 2021.
At its peak, Peloton was valued in excess of $50 billion. However, like many so-called “stay-at-home” companies, its fortunes nosedived, and PTON briefly became a penny stock in 2023. Peloton once again joined the penny stock category in 2024, but has staged a smart recovery from those lows. In this article, we’ll discuss why PTON stock has rallied, and whether it makes sense to sell the shares here after the spike.
Why Has Peloton Stock Rallied from Its Lows?
Over the last three fiscal years, Peloton has been a story of falling revenues and perennial losses. The company’s revenues fell 1.6% in the fiscal first quarter of 2025, and the midpoint of its guidance implies a double-digit decline in the current quarter, also.
However, Peloton more than made up for its sagging top line by turning nearly breakeven in fiscal Q1, and raising its full-year adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) guidance to between $240 million-$290 million – $40 million higher than its previous guidance.
Importantly, the maker of exercise bikes raised its free cash flow guidance by $50 million, and expects the metric to be at least $125 million during the current fiscal year. Peloton has posted positive free cash flows for three consecutive quarters, which is quite encouraging.
PTON Announced a New CEO and Is Now Focusing on Growth
Peloton announced Peter Stern as its next CEO, and markets gave a thumbs-up to the announcement. During the fiscal Q1 earnings call, interim CEO Karen Boone said, “As the co-founder and driving force behind Apple Fitness Plus, Peter led its growth to millions of members and is responsible for successfully scaling over a dozen other subscription services, ranging from Ford BlueCruise to Apple iCloud, to Time Warner Cable Home Security.”
Stern’s previous association with Apple (AAPL) especially charged up the bulls, as some believe that Peloton might be an acquisition target for the iPhone maker - whose CEO Tim Cook believes that improving people’s health would be "Apple’s greatest contribution to mankind.”
During the fiscal Q1 earnings call, Peloton repeated the golden words “sustainable profitable growth” multiple times. That’s precisely what markets want from the fitness equipment company, whose sales skyrocketed during the pandemic but have since been sliding.
Peloton Stock Forecast
Multiple brokerages, including BMO Capital Markets, Bernstein, Truist, Macquarie, and JPMorgan, raised Peloton’s target price following the company’s fiscal Q1 earnings release. Bank of America went a step further and upgraded the stock from “underperform” to “buy,” while raising its target price to $9.
Bank of America analyst Curtis Nagle said that Peloton’s upcoming CEO “ticks many boxes,” and forecast that the company can post an adjusted EBITDA of over $300 million in the current fiscal year as he sees the potential for “substantial earnings upside.”
While Wall Street's sentiment toward PTON has improved somewhat, the stock still has a consensus rating of “Hold” from the 19 analysts in coverage, and its mean target price of $7.76 is almost 23% below last week’s closing prices.
How High Can Peloton Stock Rise?
The first round of Peloton’s turnaround is now behind us, and it helped the company not only turn nearly breakeven on the bottom line, but also post positive free cash flows. However, PTON is now a much leaner company, with its revenues in the last fiscal year amounting to less than two-thirds of what they were two years ago.
To be sure, Peloton has made several partnerships – most recently with Costco (COST) – to increase the visibility of its equipment and enhance its sales. However, analysts don’t expect its sales to gain momentum anytime soon, and see only a 1.5% YoY rise in Peloton's revenues in the next fiscal year.
From a valuation perspective, PTON has seen a significant expansion of multiples, and trades at a next 12-month (NTM) enterprise value-to-sales (EV-to-sales) multiple of over 2x, while the NTM EV-to-EBITDA multiple is now at 18.5x.
At these valuations, it is a bit tough to make a compelling short-term investment case for Peloton, even as the company has proved critics wrong with the improvement in its bottom line and cash flows. Peloton now has to embark on the next phase of the turnaround, which is growing its top line sustainably while churning out profits and free cash flows.
Overall, while I do believe that the stock has still room to run over the long term, it won't hurt to take some profits off the table here, as at least for the short-term, PTON's risk-reward does not look too attractive.
