Peloton Interactive, Inc. (PTON) reports fiscal first quarter 2021 earnings on Thursday, with analysts expecting a profit of $0.12 per share on $733.0 million in revenue. If met, earnings per share (EPS) would mark a dramatic turnaround from the loss of $1.29 posted in the same quarter in 2019. The stock sold off more than 4% despite beating fourth quarter top- and bottom-line estimates in September but recovered quickly, posting an all-time high at $139.75 on Oct. 16.

Key Takeaways

  • Peloton has benefited from the remote workplace and fears about public fitness centers.
  • The stock has risen four-fold so far in 2020.
  • Relative strength readings have slipped into sell signals since Peloton stock topped out in mid-October.

Shares of the interactive fitness juggernaut have been pulling back since that time, caught in the broad unwinding of COVID-19 beneficiaries that dominated the summer trading environment. The stock has now relinquished about 25 points and is nearing intermediate support at the 50-day exponential moving average (EMA). However, the decline has established longer-term sell cycles that may limit buying pressure into year end, which makes sense due to 2020's 400% return to date.

Even so, bulls keep pounding the table, with both Needham and Telsey Advisory Group raising their price targets on Peloton stock this week. Both analysts are pointing to the twin tailwinds of the remote workplace and the likelihood that many folks will avoid public fitness centers long after the pandemic runs its course. Even so, the company is struggling to post profits despite high demand, raising legitimate doubts about current valuation.

Wall Street consensus on Peloton stock now yields a "Strong Buy" rating based upon 20 "Buy," 3 "Hold," and 1 "Sell" recommendation. Price targets currently range from a low of just $33 to a Street-high $160, while the stock is set to open Tuesday's session about $7 below the median $122 target. This placement bodes well for gains after the earnings release, but September's "sell-the-news" reaction may have established a bearish short-term trading pattern.

Valuation is the analytical process of determining the current (or projected) worth of an asset or a company. There are many techniques used for doing a valuation. An analyst placing a value on a company looks at the business's management, the composition of its capital structure, the prospect of future earnings, and the market value of its assets, among other metrics.

Peloton Daily Chart (2019 – 2020)

Chart showing the share price performance of Peloton Interactive, Inc. (PTON) 

The company came public at $27 in September 2019 and eased into a trading range that broke to the upside in November. The rally topped out at $37.02 in December, giving way to a slow-motion downtick that sliced through the IPO opening print in February. The stock fell to an all-time low at $17.70 in March and turned sharply higher when traders realized that pandemic lockdowns had triggered a sales and subscription boom.

The recovery wave completed a round trip into the 2019 peak in April, yielding sideways action that carved the handle of a cup and handle pattern. The stock broke out in May, entering a well-organized uptrend that carved a long series of higher highs into the October peak near $140. Price action since that time shows orderly profit-taking through a bull flag pattern that is now approaching 50-day EMA support.

The intermediate moving average is situated about four points above the psychological $100 level, perhaps setting the stage for a post-news downdraft that drops Peloton stock into the double digits. A bounce back above that level could mark a low-risk buying opportunity in this scenario, but an aggressive trading strategy that takes profits near resistance makes more sense than a long-term buy and hold in the current market environment.

Buy and hold is a passive investment strategy in which an investor buys stocks or other types of securities such as exchange-traded funds (ETFs) and holds them for a long period regardless of fluctuations in the market. An investor who uses a buy-and-hold strategy actively selects investments but has no concern for short-term price movements and technical indicators.

The Bottom Line

Peloton stock has been selling off for the past two weeks, with the stock approaching intermediate support levels just two days before first quarter 2021 earnings.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.