Long-established in the Travel & Leisure industry, Peloton Interactive Inc (PTON, Financial) has enjoyed a stellar reputation. It has recently witnessed a daily gain of 5.15%, juxtaposed with a three-month change of -30.73%. However, fresh insights from the GF Score hint at potential headwinds. Notably, its diminished rankings in financial strength, growth, and valuation suggest that the company might not live up to its historical performance. Join us as we dive deep into these pivotal metrics to unravel the evolving narrative of Peloton Interactive Inc.
Decoding the GF Score
The GF Score is a stock performance ranking system developed by GuruFocus using five aspects of valuation, which has been found to be closely correlated to the long-term performances of stocks by backtesting from 2006 to 2021. The stocks with a higher GF Score generally generate higher returns than those with a lower GF Score. Therefore, when picking stocks, investors should invest in companies with high GF Scores. The GF Score ranges from 0 to 100, with 100 as the highest rank.
- Financial strength rank: 3/10
- Profitability rank: 3/10
- Growth rank: 4/10
- GF Value rank: 4/10
- Momentum rank: 5/10
Based on the above method, GuruFocus assigned Peloton Interactive Inc the GF Score of 61 out of 100, which signals poor future outperformance potential.
Understanding Peloton Interactive Inc's Business
Peloton Interactive Inc operates an interactive fitness platform. It operates its business in two reportable segments: Connected Fitness Products and Subscription. Connected Fitness Product revenue consists of sales of bike and tread and related accessories, associated fees for delivery and installation, and extended warranty agreements. Subscription revenue consists of revenue generated from monthly Connected Fitness Subscription and Digital Subscription. The company generates the majority of the revenue from the sale of Connected Fitness Products. With a market cap of $1.89 billion and sales of $2.8 billion, the company's operating margin stands at -30.04%.
Financial Strength Breakdown
Peloton Interactive Inc's financial strength indicators present some concerning insights about the company's balance sheet health. The company's interest coverage ratio of 0 positions it worse than 0% of 563 companies in the Travel & Leisure industry. This ratio highlights potential challenges the company might face when handling its interest expenses on outstanding debt. The company's Altman Z-Scoreis just -2.13, which is below the distress zone of 1.81. This suggests that the company may face financial distress over the next few years. Additionally, the company's low cash-to-debt ratio at 0.34 indicates a struggle in handling existing debt levels.
Profitability Breakdown
Peloton Interactive Inc's low Profitability rank can also raise warning signals. Peloton Interactive Inc's Operating Margin has declined over the past five years ((-190,971.00%)), as shown by the following data: 2019: -22.10; 2020: -4.35; 2021: -4.56; 2022: -45.88; 2023: -30.04. Additionally, Peloton Interactive Inc's Gross Margin has also declined over the past five years, as evidenced by the data: 2019: 41.92; 2020: 45.88; 2021: 36.16; 2022: 19.50; 2023: 32.98. This trend underscores the company's struggles to convert its revenue into profits.
Growth Prospects
A lack of significant growth is another area where Peloton Interactive Inc seems to falter, as evidenced by the company's low Growth rank. The company's revenue has declined by -0.8 per year over the past three years, which underperforms better than 52.58% of 757 companies in the Travel & Leisure industry. Stagnating revenues may pose concerns in a fast-evolving market. Over the past five years, Peloton Interactive Inc has witnessed a decline in its earnings before interest, taxes, depreciation, and amortization (EBITDA). The three-year growth rate is recorded at -192.9, while the five-year growth rate is at -93.7. These figures underscore potential challenges in the company's profitability.
Conclusion
Given the company's financial strength, profitability, and growth metrics, the GF Score highlights the firm's unparalleled position for potential underperformance. While Peloton Interactive Inc has made significant strides in the Travel & Leisure industry, its current financial health and growth prospects may not be sustainable in the long run. Therefore, investors should exercise caution when considering this stock for their portfolio.
GuruFocus Premium members can find more companies with strong GF Scores using the following screener link: GF Score Screen
