By David Einhorn says Peloton Interactive Inc (NASDAQ: PTON) is “significantly undervalued” at current levels.
Greenlight Capital – the hedge fund he founded in 1996 even loaded up on 6.8 million shares of the connected fitness company to reflect that sentiment in August.
Still, I’m not fully convinced that Peloton stock is a name that I would want to invest in at writing.
Why? Because a bunch of challenges continue to haunt this exercise equipment maker.
Here’s why I’m cautious on Peloton stock
Peloton stock has more than doubled since its most recent earnings release in mid-August.
The Nasdaq-listed firm did come in ahead of Street estimates but I would still give its financial report a solid “B” at best.
That’s because the positive EBITDA and free cash flow that investors are so excited about were non-GAAP figures.
So, I for one remain cautious on how much does it really mean for PTON in the long run.
Peloton has pushed sharply up in recent weeks also because it succeeded in refinancing debt that was coming due soon.
But then again, it had to go from extremely low interest rate on its debt to as much as 5.5% to strengthen its balance sheet in the near term.
Longer-term, however, higher interest rate on its debt will result in higher costs.
So, how would the refinancing help PTON share price in the long run?
Good news may already be baked into Peloton shares
Peloton Interactive that recently signed a deal with Costco tapped on cost cuts to improve its per-share loss in the fourth quarter to 8 cents only from 68 cents a year ago.
But let’s face it, there’s only so much cost it can cut to drive long-term gains.
Plus, the exercise equipment maker is currently being run by acting chief executives.
So, there’s uncertainty regarding its future business direction.
While that may subside once PTON names a new permanent CEO – it’s conceivable that the new leadership will choose to invest in the business to drive subscriber growth that was down 1.0% in Q4.
Unfortunately, though, it would increase spending again as well.
Finally, Peloton stock has well over doubled since mid-August.
That makes me wonder if a lot of the good news is already priced into the shares of this connected fitness company.
After all, the Street-low price target on PTON currently sits at $2.0 only that warns of a potential 65% downside from here.
All in all, I see Peloton stock as suitable only for investors with a rather huge risk appetite at writing.
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