Peloton Stock Still Has No Place in a Legitimate Growth Portfolio

Peloton (NASDAQ:PTON) is making headlines again. This time it’s not a 21% single-day gain for PTON stock based on acquisition rumors. That was Monday. There are currently three big developments on the Peloton front. The company’s CEO is stepping down, while Peloton is also laying off a large chunk of its workforce and abandoning its plans to build a U.S. factory. The market reaction to the news has been positive so far with PTON stock popping even further (over the past 5 days it has climbed nearly 35%).

At this point, even after the big gains, PTON stock is still cheap.

A very short time ago, I wrote that investors who are interested in long-term growth stocks should avoid Peloton. Tempting as the sizeable discount on shares of this fitness stock may be — they closed at $29.75 on Monday compared to a peak of $162.72 in December 2020 — the future of this company remains too murky.

Here are details on the latest Peloton developments, along with some analysis on the company’s prospects.

Peloton Announces Layoffs, New CEO

Peloton started Feb. 8 off with a bang, issuing a series of early morning press releases outlining some big developments. First, co-founder John Foley is out as CEO. He becomes Executive Chair of the Peloton Board of Directors. Barry McCarthy, an executive with senior leadership experience at several leading streaming services companies is the new President and CEO.

Foley noted the new CEO’s strengths, including a nod to the acquisition rumors that have been swirling around Peloton: “He’s not only recognized as an expert in running subscription business models and helping category-leading digital streaming companies flourish, but he has also had tremendous success in partnering with founder CEOs at other brands.”

Peloton also announced that it will wind down its planned U.S. factory, while also reducing its own warehousing and delivery footprint. The company is planning to lean more heavily on third-party partners. In addition, Peloton is “right-sizing” its workforce, eliminating 2,800 positions. The company says this includes reducing corporate positions by 20%, along with reduced warehouse and delivery positions. It does not include cuts to Peloton fitness instructors.

We’ll see what the impact of these announcements have on PTON stock, but any time a company dump its co-founder/CEO, “right-sizes” its workforce, walks away from a planned factory and announces it is turning to third parties to pick up the slack, that’s seldom good news. At least not for anyone who had been looking at the company as a long-term investment. 

Potential Peloton Acquisition in the Works?

The big speculation around Peloton since last week is the potential for the company being snapped up.

Amazon (NASDAQ:AMZN) has been named as possible buyer. That rumor triggered the big pop in PTON stock on Monday. This combination might make sense. Amazon has deep pockets, it has been trying to get into the fitness market, it has considerable experience with subscription business models, and it has a huge distribution network. Arranging for the manufacture, distribution and delivery of Peloton bikes would be a non-issue.

There have been many other companies suggested as potential suitors. Apple (NASDAQ:AAPL) seems obvious on the surface — because of the fitness interest and reputation for selling premium hardware — but that quickly falls apart. Apple certainly has the cash to buy the company, but Peloton’s services essentially parallel much of what Apple already has in place with Apple Fitness+. In addition, Apple, has been pushing a fitness hardware-agnostic approach, relying instead on the Apple Watch.

Nike (NYSE:NKE) has also been floated. That’s a possibility, but Nike has always been focused on fitness clothing and accessories rather than on hardware. However, it would likely benefit from Peloton’s paid subscriber base. The company could sell them on more services and direct market shoes and other fitness accessories.

Ultimately, it seems like a sale of Peloton is the likely outcome of this situation. 

As NYU Stern Business School marketing professor Scott Galloway said of Peloton in an interview at the end of January (before the current round of rumors gained steam): “This company should be sold….probably should have been sold six months ago.”

Bottom Line on PTON Stock

Where will PTON stock go next? Who knows.

There are so many variables in play: declining demand, supply chain issues, bad PR, iOS marketing challenges, retail traders, a new CEO, layoffs and acquisition rumors. Peloton shares ended Monday worth 21% more than they were on Friday, but they’re still down from December 2020 levels by about 20%.

At this point, PTON is a very speculative play. While being acquired seems like the outcome to bet on, literally anything could happen. With an “F” rating in Portfolio Grader and non-stop speculation over what happens next, PTON stock has no place in a growth-focused portfolio.

On the date of publication, Louis Navellier had a long position in AMZN and NKE. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article. InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.

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