Many growth stocks got absolutely clobbered in 2021. There is one stock, in particular, that got taken to the woodshed and that I think could have a massive bounce in 2022.

That stock is Peleton Interactive Inc (PTON). I like the company, it has great products and services, and it is a pioneer in the fitness streaming industry. It was a tough year for PTON in 2021, with product recalls and price drops sending the stock lower, then a big earnings miss and lower guidance than expected sent investors running for the hills. 

Coming into 2022, PTON is down more than 75% from its highs. I see huge value in PTON at these levels and am watching it closely for massive bounce potential!

Peloton (PTON)

Peloton Interactive, Inc. provides interactive fitness products in North America and internationally. It offers connected fitness products with a touchscreen that streams live and on-demand classes under the Peloton Bike, Peloton Bike+, Peloton Tread, and Peloton Tread+ names. 

This was one of the best Covid-19 trades as demand for Peletons grew during lockdowns in the U.S and Europe. Last year the stock was up over 500% from IPO levels. In 2021 however, as most of the world re-opened, PTON  traded down over 75% off its highs of $171 at around the $36 level.

Fundamentals

I like the company, it has great products and services, and it is a pioneer in the fitness streaming industry. Two issues hurt the company’s performance last year. Recalls of Tread and Tread+ treadmill products in May played a part as well as the temporary halt in sales of the machines. This was due to some accidents involving children. Unfortunately, treadmills, in general, have safety issues involving children and I see this as a temporary setback as the company completes its recall and improves its product. 

In addition, PTON cut the price of its original bike by $400. This was unexpected news by the market, and it reacted in a negative way. However, in my opinion, over the longer term, a price drop is not that bad as PTON seeks to increase its market share as it competes with offerings from Apple Inc. (AAPL) and Lululemon Athletica Inc (LULU). 

Finally, the biggest dagger came from PTON’s Q3 Corporate Earnings, where PTON missed on every metric:

Earnings

Peloton Interactive Q1 EPS $(1.25) Misses $(1.07) Estimate, Sales $805.20M Miss $810.76M Estimate

Peloton Sees Q2 Sales $1.1B-$1.2B vs $1.51B Est., Sees FY22 Sales $4.4B-$4.8B vs $5.4B Est.

When a growth stock that is losing money misses estimates, bad things happen. After the missed earnings, PTON gapped from $86.06 to open at 57.13 on November 5. It finished 2021 by closing at $35.76; what a disaster for holders. It is moves like this that remind us why risk management is so important in trading. 

The main cause of the drop is that PTON’s revenue growth dropped from over 50% year-over-year to under 10%. As can be seen by the red line in the chart below, it was also the second sequential quarter-over-quarter revenue decline. 

Despite these significant issues, PTON still has a cult following and new product offerings coming up, such as the newly expected rowing machine. Given the significant pullback in its stock price to almost IPO levels from 2 years ago, PTON could be setting up for a great buying opportunity here.

Technicals

PTON is trading lower almost every week as the bears have been in full control since the stock made a high during the peak pandemic levels over $150.  

Since trading back to the double-digits and nearly the IPO price, I’m thinking that PTON should start to see some bulls start to jump in for a push higher.

At this level, the bulls appear to have taken some control of the stock and $35 seems to be a pivot low and a new higher low in a possible new uptrend.  

For the uptrend to be real, $37.50 needs to be tested and broken for the bulls to be in full control.

The Trade

I am actively stalking PTON for a bounce trade. I have a working order to sell a put spread below last year’s low and am waiting for a fill. However, I will also be looking for some strength from PTON to take a more aggressive position for a move much higher. 

Bottom Line

2021 was a rough year for many growth stocks. One of the worst-hit by this risk-off sentiment in money-losing companies was PTON. Product recalls price drops, and a huge unexpected earnings miss sent the stock down over 75% off the highs. 

However, with PTON getting towards its IPO price, it seems to me to be severely oversold. Stocks that go down this much so fast can typically have major bounces. 

I am actively stalking PTON for a bounce trade. I have a working order to sell a put spread below last year’s low and am waiting for a fill. However, I will also be looking for some strength from PTON to take a more aggressive position for a move much higher.