Will Peloton Stock Recover?

Will Peloton Stock Recover? All it takes is one mistake for a seemingly unstoppable company to go from the head of the pack to somewhere toward the back of the herd.

As a result of that one little trip up, the most in-demand stock can suddenly become the one you wish you would have sold earlier. Take Peloton, for example: After nearly reaching $170 a share back in January of 2021, PTON share price has nearly halved — they plummeted as low as $80 per share, with the potential to drop even further.

So, what happened to cause this sudden drop? And, more importantly for investors, will Peloton stock recover?

Peloton Stock Fell During Treadmill Scandal

The root cause of Peloton stock’s massive fall from grace has nothing to do with their incredibly popular stationary bikes and everything to do with their up-and-coming treadmill, aptly named the Peloton Tread.

Their ever-popular bikes have been an enormous hit, especially since the start of the pandemic, because they bring the cycle studio experience into the home with the aid of a large screen positioned above the stationary bike’s handlebars.

They took this concept and applied it to the Tread, and it was quite successful for them in the early part of the product’s rollout.

However, Peloton soon had a scandal on their hands: The Tread quickly became an issue for the company once the injuries started rolling in.

By the time all was said and done, over 125,000 treadmills had to be recalled as a result of 70 injuries and one death — some of which even included children. With the recalled Treads going for anywhere from $2,500-$4,300, this scandal took a huge toll on the company’s stock price.

Management’s Initial Response & Eventual U-Turn

Of course, products are recalled every day without companies facing large-scale drops in their share prices.

A lot of what drove Peloton’s nosedive had to do with the way the management initially responded to the scandal in question. Peloton executives were made well aware of the problems surrounding the Tread, but they outright refused to recall the product and prevent more injuries from happening.

The government even issued a warning to the company, but they stayed firm in their stance against recalling — even after the death of a child. All the while, their shares continued to drop in price.

Eventually, due to immense pressure from both the public and the government, Peloton decided to make a 180 degree turn and recall the 125,000 Treads to prevent further damages to their brand and further injuries to their customers.

For the longest time, they insisted the problem fell on the hands of the consumer, not the company. Clearly, judging by the way their stock dropped since January alone, the consumers strongly felt otherwise.

What Percent Of PTON Revenues Are From Treadmill Sales?

According to the most recent numbers from Peloton’s latest quarterly earnings, Peloton’s projected revenue was $915 million after accounting for the $165 million loss as a direct result of the Tread recalls.

If not for the Tread recall, Peloton would have raked in over a billion dollars for the third quarter that ended on March 31st.

That would have been a 141% increase if not for the tough blow they took because of Tread. This means that Tread sales only accounted for about 13% of their revenue. Needless to say, their dip in share price is a lot greater than just 13%.

How Much Did Peloton Stock Fall On Recall News?

As soon as the news broke about Peloton’s eventual Tread recall, the company’s stock fell 15% in one day alone — this is equivalent to wiping out 4.1 billion dollars from the company’s market value.

That’s just because of the recall — all in all, the company’s stock is down by nearly 50% year to date, with no set return for the Tread in sight.

Rest assured, the company won’t let hundreds of millions in potential sales go to waste: The Tread will be back, but it’s probably going to take a while for people to trust them again.

Is The Percent Decline In PTON Stock Overblown Compared To Percent Of Revenues From Treadmill Sales?

Because Peloton’s bikes account for a vast majority of their sales, one could potentially argue that the percent decline in Peloton stock is pretty severely overblown compared to the percent of their revenue that actually comes from sales of the Tread.

Alas, this was a truly disastrous PR gaffe on the company’s part — this explains why the stock declined so drastically, even though the actual percent of revenues from Tread sales is not even close to comparable to the percent of revenues from bike sales.

The PR fallout is a real risk however. Will prospective customers not buy the Tread because of safety concerns? Investors seem to think so in the short-term at least.

Will Peloton Stock Recover?

Whether or not Peloton’s stock will recover is dependent on a few different factors. For starters, Peloton actually needs to correct the issue with the Tread to prevent anyone or anything else from getting caught in the treadmill’s belt and pulled underneath the machine.

They can’t just take it away and then bring it back in a few months when the pressure is off. There needs to be real, visible change.

Additionally, Peloton needs to issue a better and more heartfelt apology to those injured (or worse) by the Tread. They need to account for their failure to act in a way that shows they’re sorry it happened, not just sorry they got in trouble.

Lastly, they need to continue to innovate and revolutionize workout equipment in the same way they’ve done for years now. They need to remind the public that they’re still committed to their mission despite their poor judgement with the Tread.

With all of these factors taken into consideration, it wouldn’t be out of the ordinary to see Peloton’s stock recover in the coming months.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.