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Stock of the Week: Peloton

James Gard  |  01 Jul 2021Text size  Decrease  Increase  |  
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Ahead of the start of this year’s Tour de France this weekend, we asked out Twitter followers to choose a cycling brand as stock of the week. After riding neck and neck all week, Peloton (PTON) broke free of the pack to make a last dash to finish ahead of Halfords (HFD) and Cannondale owner Dorel (DII.A).

Peloton, maker of high-end bikes and high-energy exercise classes, was one of the clear winners of the lockdown boom in stay-at-home sports equipment. Shares rose more than 400% in 2020, but have dropped 21% so far this year as people return to gyms, sports classes and outdoor exercising.

Fund managers who own stocks in the wider sporting industry, including Peloton, argue that some people will still be keen to avoid crowded gyms and restuarants even if they’re vaccinated. At least some of those who took on new habits during the pandemic, like using an exercise bike at home, will hold on to these. This is all the more likely if you’ve paid around $2,900 for a Peloton bike and signed up for its subscription model.

Peloton share price

The New York-based company float in September 2019 at $29. Shares peaked at at $162 in December 2020, and are now trading around $120. Pitchbook, a Morningstar owned company, ranks Peloton’s IPO as one of the most successful consumer-facing floats in recent years, as it’s gone from a market capitalisation of $8 billion in 2019 to $36 billion today.

“Despite gyms reopening, we foresee demand for at-home fitness solutions will remain robust. Transition to at-home fitness began before the pandemic consumers sought the ability to work out when and where they want,” Pitchbook’s Kaia Colban and Susan Hu say in their Retail Health and Wellness tech quarterly report.

Rather than just selling exercise bikes, Pitchbook says, Peloton is a “fitness technology” brand that aims to capture loyal customers in an ecosystem like that of Apple (AAPL). Being part of a wider community is a key part of Peloton’s appeal, the report’s authors say, taking the popularity of spin and crossfit classes online. 

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Peloton’s steep upwards trajectory as a public company has encouraged other unlisted tech companies to shore up their plans to IPO, Pitchbook says. One of these is cycling app Zwift, which allows users to compete and train virtually in a video game setting. Another is home fitness company Tonal, which has secured backing from Amazon (AMZN), and is now worth around $1.45 billion after a recent funding round.

For fitness enthusiasts wondering if there might be a better (or indeed cheaper) alternative to Peloton, ClassPass aggregates online fitness classes for users to choose from. Gympass does the same, but for employers wanting workers to step away from their desks or home studies and get some exercise. But Peloton has been quick to tap into this sector too, buying into Peerfit, a benefits startup that offers company-sponsored programmes. Firms are wising up to the idea that fitter employees are more productive ones and less likely to take sick leave. Indeed, Gympass says that most of the employees who have signed up have never used a gym, in real life or virtually.

is senior editor for Morningstar.co.uk

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