With a membership base of more than 6.9 million users, Peloton Interactive Inc. (PTON) is the top interactive fitness platform in the world. The company was the first to offer its members immersive, instructor-led boutique classes streamed anytime, anywhere through a connected, technology-enabled fitness model.

However, its shares have declined 90.7% over the past year and 28.3% over the past three months to close its last trading session at $9.44. In addition, the stock is currently trading 92% below its 52-week high of $118.61, which it hit on September 10, 2021.

Last week, the stock fell 7.9% toward a five-week low after UBS analyst Arpine Kocharyan downgraded her outlook, citing declining sales and a persistently dim profitability outlook. Kocharyan lowered her price target by about 38%, to $8 from $13, and maintained the sell rating she has had on the stock since January 18, 2021.

Here's what could shape PTON's performance in the near term:

Inadequate Financials

PTON's total revenue decreased 27.6% year-over-year to $678.7 million for the fourth quarter ended June 30, 2022. Its operating loss grew 298.6% from the prior-year quarter to $1.20 billion. The company’s net loss surged 297.3% from the year-ago value to $1.24 billion.

Its loss per share grew 250.5% year-over-year to $3.68. In addition, its net cash used in operating activities came in at $2.03 billion, representing an increase of 750.1% for the fiscal year ended June 30, 2022.

Negative Profit Margins

PTON's trailing-12-month gross profit margin of 19.5% is 46.6% lower than the industry average of 36.5%. Also, its trailing-12-month ROA, net income margin and ROE are negative 69.7%, 78.6%, and 238.9%, respectively. Moreover, its trailing-12-month asset turnover ratio of 0.84% is 18.8% lower compared to its industry average of 1.03%.

Poor Growth Prospects

Street expects PTON's revenues to decline 14.4% year-over-year to $3.07 billion in fiscal 2022. In addition, its EPS is expected to decline by 76.5% per annum over the next five years and remain negative in the current and next years.

POWR Ratings Reflect Bleak Outlook

PTON has an overall F rating, which equates to a Strong Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. PTON has an F grade for Quality and a D for Stability. Its poor profitability is in sync with the Quality grade. In addition, the stock’s beta of 1.42 is consistent with the Stability grade.

Of the 59 stocks in the C-rated Consumer Goods industry, PTON is ranked #57.

Beyond what I've stated above, you can view PTON ratings for Growth, Momentum, Value, and Sentiment here.

Bottom Line

PTON's bottom line has been affected by weakening demand and softening sales as the company struggles to adjust to the post-Covid economy. Moreover, the current macroeconomic uncertainty is expected to exacerbate its problems.

In addition, the stock is currently trading below its 50-day and 200-day moving averages of $10.55 and $22.68, respectively, indicating a downtrend. Given its poor financials, unfavorable analyst estimates, and negative profitability, it may be prudent to avoid the stock now.

How Does Peloton Interactive Inc. (PTON) Stack Up Against its Peers?

While PTON has an overall F rating, one might want to consider its industry peers, Mannatech Incorporated (MTEX) and Ennis Inc. (EBF), which have an overall A (Strong Buy) rating.

PTON shares were trading at $9.16 per share on Tuesday morning, down $0.28 (-2.97%). Year-to-date, PTON has declined -74.38%, versus a -16.61% rise in the benchmark S&P 500 index during the same period.

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.

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