Peloton has recalled all of its biggest revenue streams in an accident that killed a child and injured dozens. Analysts give different forecasts for Peloton stock.
Peloton (PTON) shares fell to a 10-month low on Wednesday, with the company losing about $ 4 billion in market value in just one day. As of the close of trading on Wednesday, Peloton’s capitalization was $ 24.5 billion.
The reason is the decision of the management of the fitness company to recall all of their Tread + treadmills due to the incidence of child injuries and one death. According to the company, owners of treadmills must contact Peloton to return it and receive full compensation by November 2022.
Marketinfo.pro wrote in the article “Peloton Shares Fall 6.6% Amid Safety Investigation” that last month the company’s management offered condolences to the families of the victims, but indicated that Peloton equipment is safe, but not intended for younger children. 16 years.
The operating instructions for the treadmill contain precautions to prevent children or animals from accidentally turning it on (for this, the safety key is removed and stored away from the Tread +).
Peloton shares have dropped more than 30% since March 18 amid the news.
Peloton received a request from the US Consumer Product Safety Commission (CPSC) to recall the treadmills on March 18, but refused, indicating that it would challenge the decision in court.
Peloton CEO John Foley changed his rhetoric Wednesday, saying, “I want to make it clear that Peloton made a mistake in our initial response to the Consumer Product Safety Commission’s request to recall Tread +. We should have interacted more productively with them from the very beginning. I apologize for that. “
Treadmills are Peloton’s most expensive trainer, and they also make money from selling exercise bikes and online fitness subscriptions.
During the COVID-19 pandemic, especially in the second half of 2020, Peloton’s stock rose sharply as the company saw a boom in demand for its products and services amid indoor gyms and fitness centers.
The company was unable to meet the demand for its exercise equipment and did the hard work to increase production, and the recently released cheaper Tread model exceeded UK sales expectations.
With the ongoing safety investigation of Peloton simulators, the company finds itself in a state of uncertainty.
Some analysts, such as Scott DeWitt of Stifel, say that recall requests from the CPSC are not uncommon, so the current Peloton problem is likely to be temporary and create a good buying opportunity.
Others, such as Simeon Siegel, analyst at BMO Capital Markets, are more pessimistic and point to the overvaluation of Peloton shares.
Siegel believes that “Peloton’s shares were growing faster than the company’s business,” and its market value was “much greater than its expected results.”
The analyst gives Peloton a “below market” rating and a target price of $ 45, nearly half of Wednesday’s closing price of $ 82.6.
KeyBanc analyst Ed Yuruma, in turn, said Peloton’s current situation “may have other non-quantifiable impacts on long-term demand.”
In addition, even before the CPSC’s demands on Peloton, analysts questioned the company’s continued growth in the face of the lifting of quarantine restrictions and mass vaccination of the population against COVID-19.
Peloton plans to report its financial third quarter results today after the market close. While the results are likely to be good, they are unlikely to offset the current crisis. Companies facing similar reputations take a long time to recover.