Peloton shares fall after UBS hits cycle maker with downgrade, citing huge stock gains

Cari Gundee rides her Peloton exercise bike at her home on April 06, 2020 in San Anselmo, California.

Ezra Shaw | Getty Images

Peloton shares tumbled Tuesday after UBS downgraded the stock to sell from neutral, saying an incredible runup over the past year leaves more downside risk for investors from here.

Shares were recently down nearly 7%, having rallied about 370% from a year ago.

“Given recent market activity, we think investors need to be wary of the rising trend of bull market optimism in a handful of businesses that have been either Covid-19 ‘beneficiaries’ and/or have come to the public markets in the last 6-18 months,” UBS analyst Eric Sheridan said in a note to clients.

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

Over the weekend, the New York Times also ran a piece on Peloton that highlighted how the company’s social media account “has become a beacon for outrage about delayed deliveries and hours spent with customer service representatives.”

Peloton has seen incredible growth during the Covid-19 pandemic, with more people looking to work out from home, and many gyms have been forced shut. But it has struggled to keep up with demand. The high-end cycle and treadmill maker has faced backlash from customers who are not receiving their orders on time and are experiencing delays for weeks on end, sometimes with little to no notice.

Late last year, the company paid $420 million to acquire Precor, a fitness manufacturer based in the U.S., to allow it to make its products faster and closer to customers’ homes. But it will likely take some time for these efforts to yield positive results. In November, Peloton said it expected to be operating under supply constraints “for the foreseeable future.”

“The current valuation reflects a high level of confidence from investors on Peloton’s ability to deliver outsized operating results (especially amid logistics/operational challenges…),” UBS’ Sheridan said.

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