Peloton (PTON) shares plunge after UBS hit bicycle maker with a downgrade

Cari Gundee rides her peloton exercise bike at her home in San Anselmo, California on April 6, 2020.

Ezra Shaw | Getty Images

Peloton stock fell Tuesday after UBS downgraded the stock from neutral to sell. A staggering spike over the past year carries greater downside risk for investors from here.

Stocks recently fell nearly 7% after rising 370% year over year.

“Given recent market activity, we believe investors need to be cautious about the growing trend of bull market optimism in a handful of companies that have either benefited from Covid-19 and / or entered the public markets in the past 6 years. 18 months, “said UBS analyst Eric Sheridan in a statement to clients.

The investment firm raised its price target on Peloton shares from $ 115 to $ 124 and continues to believe the company has a “long-term opportunity to disrupt traditional fitness business models.” The stock opened at $ 152.55 on Tuesday. It hit an all-time daily high of $ 171.09 on Jan. 14.

The New York Times also published an article on Peloton over the weekend highlighting how the company’s social media account has “become a beacon of outrage over late deliveries and hours spent with customer service agents.”

Peloton saw incredible growth during the Covid-19 pandemic. More and more people want to work out from home, and many gyms have closed. But it has been difficult to keep up with demand. The high-end manufacturer of bicycles and treadmills has problems from customers who do not receive their orders on time and are delayed for weeks, sometimes without notice.

Late last year, the company paid $ 420 million to acquire Precor, a US-based fitness manufacturer, so that its products can be manufactured faster and closer to customers’ homes. However, it will likely take some time before these efforts produce positive results. In November, Peloton announced that it would likely operate with delivery bottlenecks “for the foreseeable future”.

“The current valuation reflects the high level of investor confidence in Peloton’s ability to deliver oversized operating results (especially given logistical / operational challenges …),” said Sheridan of UBS.