Back on December 22, 2020, I detailed why Peloton Interactive (PTON), with a market capitalization of $42.2 billion was ridiculously overpriced at $161 per share. I recommended selling your shares if you were an owner or shorting Peloton if you weren’t.
Today, Peloton closed at around $83 per share, with a market cap of $24.3 billion. So had you taken my advice and shorted 100 shares, you’d be sitting with a $7,800 profit representing a whopping 145% annualized return.
While some of Peloton’s price decline is attributable to recent issues with defective equipment requiring a product recall, the decline in price began much earlier, as savvy investors began selling their positions to less sophisticated investors who were jumping on the Peloton bandwagon.
While Peloton’s fundamentals have moved closer to reality, the company is still grossly overvalued. At $11.5 billion, the home fitness market does not warrant a company being valued at $24.3 billion. A reasonable market cap for this company is around $8 billion, which translates to a share price of around $28.
Thus, even if Peloton recovers from its defective equipment issues, there is still plenty of downside with this stock.