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Peloton (PTON) Shares Skyrocket, What You Need To Know

PTON Cover Image
Peloton (PTON) Shares Skyrocket, What You Need To Know

What Happened:

Shares of exercise equipment company Peloton (NASDAQ:PTON) jumped 6.9% in the morning session after major indices soared as yields declined after the Bureau of Labour Statistics reported CPI (Consumer Price Index - a gauge of the average price consumers pay for goods and services) for the month of May 2024 came in better than expected at 3.3% year on year (versus analysts’ expectations for 3.4%). The data also revealed that inflation was flat (unchanged) month on month.

The inflation results benefitted from a 2% decline in the energy index, while shelter inflation remained sticky (up 0.4% m/m and 5.4% y/y).

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Sticky inflation is exactly what has delayed the Fed’s planned rate cuts in 2024, with some market participants likely worried that inflation might stay higher for longer. Today’s report eased those worries a bit.

As a reminder, the driver of a stock's value is the sum of its future cash flows discounted back to today. With lower interest rates, investors can apply higher valuations to their stocks. No wonder so many in the investment community are optimistic about 2024. We at StockStory remain cautious, as following the crowd can lead to adverse outcomes. During times like this, it's best to own high-quality, cash-flowing companies that can weather the ups and downs of the market.

Is now the time to buy Peloton? Access our full analysis report here, it's free.

What is the market telling us:

Peloton's shares are very volatile and over the last year have had 67 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business.

The previous big move we wrote about was 22 days ago, when the stock dropped 12.9% on the news that the company announced a refinancing plan to improve its liquidity and shore up its balance sheet. Peloton intends to 1.) Offer $275.0 million of convertible senior notes due 2029 in a private offering 2.) Enter into a $1 billion five-year term loan facility 3.) Enter into a $100.0 million five-year revolving credit facility. The company intends to use the proceeds to repurchase $800m of existing debt and refinance existing loans.

Rising interest rates have raised the borrowing cost for companies, and Peloton's debt issuance is likely being met with skepticism by investors. The market could be worried about the cost of managing the debt, including interest payment, given its weak topline growth and unstable business that has recently seen the CEO depart.

Also, the company has struggled to generate positive cash flows following the pandemic-era boom in demand, which was a huge tailwind to the business but proved temporary.

Finally, there could also be concerns about the potential dilutive effect of the convertible notes, which can be converted to the company's common stock, raising the total share count.

Peloton is down 34.2% since the beginning of the year, and at $3.83 per share it is trading 60.9% below its 52-week high of $9.78 from July 2023. Investors who bought $1,000 worth of Peloton's shares at the IPO in September 2019 would now be looking at an investment worth $148.56.

Here at StockStory, we certainly understand the potential of thematic investing. Diverse winners from Microsoft (MSFT) to Alphabet (GOOG), Coca-Cola (KO) to Monster Beverage (MNST) could all have been identified as promising growth stories with a megatrend driving the growth. So, in that spirit, we’ve identified a relatively under-the-radar profitable growth stock benefitting from the rise of AI, available to you FREE via this link.