Peloton Stock Has Soared 256% From Its 52-Week Low. Is It Too Late to Buy?

Peloton Interactive (NASDAQ: PTON) stock was a pandemic darling. It reached a record high of $162 at the end of 2020, on the back of surging sales for the company's at-home exercise equipment, which helped fitness enthusiasts stay active in the midst of lockdowns and social restrictions.

But sales plummeted once social conditions returned to normal, which sent Peloton's losses skyrocketing. On a few occasions since 2022, there were even concerns that the company wouldn't survive, prompting a management shakeup and a major shift in strategy.

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Some of those changes are starting to bear fruit at the bottom line, and Peloton stock has recently soared by 256% from its 52-week low. However, with a stock price of just $9.63 as of this writing, it remains 94% below its record level from 2020. Is this the start of a long-term recovery, or will the recent upside fizzle out?

Sales continue to decline

At the beginning of 2022, Peloton appointed Barry McCarthy as CEO. He brought a wealth of experience from his time as an executive at Spotify and Netflix. His primary focus was securing Peloton's survival by dramatically cutting costs and creating new opportunities to generate revenue.

During his two-year tenure (which ended in 2024), McCarthy slashed half of Peloton's workforce, offshored manufacturing for its exercise equipment, and tapped into new sales channels by listing products with third parties like Amazon and Dick's Sporting Goods. He also expanded Peloton's subscription business by creating a new app-based service for fitness enthusiasts who don't use the company's equipment.

In fact, subscriptions now bring in more revenue than equipment sales. But, unfortunately, growth has stalled, with subscription revenue decreasing by 1% year over year during its fiscal 2025's second quarter (ended Dec. 31, 2024). Churn remains a problem -- the number of connected fitness subscribers shrank 4% during the quarter, to 2.88 million members. Paid app subscribers (those who don't own Peloton's hardware) plunged 19% to 579,000.

Equipment revenue is shrinking at an even faster pace, declining by 20% during Q2 on the back of sluggish sales of flagship hardware products like the Bike, Tread, and Row. According to Peloton's guidance, its total revenue for fiscal 2025 is on track to come in at $2.4 billion. That would represent a drop of 9% from fiscal 2024, marking the fourth consecutive annual decline. This is a serious problem, and I'll explain why in a moment.

Image source: Peloton Interactive.

Improvement at the bottom line

Peloton's cost cuts continue to outpace the declines in its revenue, which is driving an improvement at the bottom line. For example, the company's revenue shrank by 3.5% during fiscal 2024, but operating expenses were down 18.2%. The company still lost $551.9 million on a GAAP (generally accepted accounting principles) basis, but that was a massive reduction from its $1.2 billion net loss in fiscal 2023.

That trend continued in the first half of fiscal 2025. Peloton lost just $92.8 million for the six-month period, which was down from $354.1 million in the year-ago period. The improvement was driven by a 27.5% decrease in operating expenses, which outpaced the 5.9% drop in revenue.

The picture looks even better from a non-GAAP perspective. After excluding one-off costs related to things like restructuring, and non-cash expenses like stock-based compensation, Peloton actually delivered $174.2 million in adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) during the first half of fiscal 2025. It isn't "true" profitability because of all the exclusions, but it suggests the company is moving in the right direction.

However, management can't slash costs forever. Repeatedly cutting operating expenses like marketing and research and development hinders the company's ability to attract new customers and release new products, which risks placing its revenue in an irreversible downward spiral. So, while achieving profitability is important, it's not necessarily a huge positive if it's on the back of sharp cost cuts alone without any organic sales growth.

Is it too late to buy Peloton stock?

Peloton stock currently trades at a price-to-sales (P/S) ratio of 1.3, which is more than triple where it was in mid-2024. It suggests investors are becoming more confident in the possibility of a positive outcome from this difficult period. However, Peloton's P/S ratio is at rock bottom compared to where it was a few years ago, which means this recovery might still have legs if the company continues turning things around.

PTON PS Ratio data by YCharts.

Still, no investor likes owning a shrinking business, and that's exactly what Peloton is right now. The company is in a relatively secure position because it's generating positive adjusted EBITDA, and it has $829 million in cash and equivalents on its balance sheet. However, it also has $948 million worth of debt which will have to be addressed in the future.

My concern is that Peloton won't be able to deliver organic revenue growth from here, and it will eventually run out of costs to cut, which will lead to ballooning losses once again.

Peloton's new CEO, Peter Stern, officially stepped into the job on Jan. 1. He most recently worked at Ford Motor Company, but he also spent six years as the Vice President of services at Apple, where he managed products like Apple TV and Apple Fitness. Hopefully, he can use his experience to build on McCarthy's work and chart a path back to growth.

With that said, I suggest avoiding the stock until that moment comes.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Apple, Netflix, Peloton Interactive, and Spotify Technology. The Motley Fool has a disclosure policy.