Peloton (NASDAQ: PTON) stock soared in trading yesterday as rumours circulated that sportswear giant Nike and online retail juggernaut Amazon were considering bidding for the battered fitness firm. Does it make sense for a Foolish UK investor like me to climb on board for the ride?
Reasons to buy
Despite having been a Peloton sceptic for a long time, I don’t think this company is without merit.
Its flagship bikes are undeniably beautiful bits of kit. Like any other premium brand, I can still see some people wanting one for the image it projects. That’s regardless of how often they actually intend to use it. And a few businesses may consider that to be worth (quite a bit) more than the $10bn valuation it now trades for.
There’s also little doubt in my mind that the industry is only likely to go from strength to strength in the years ahead. The evolution of smart health-related tech shows no signs of slowing. The influence of social media will surely play a role in pushing more people to improve their fitness too.
The idea of a heavyweight like Amazon or Nike acquiring the company could also attract other potential suitors to the fray. Apple‘s name was bandied about when Peloton stock first began its awful slide. Having seen it now tumble 80% in one year (even after yesterday’s 21% rise), the Cupertino-based business could now throw its cap into the ring.
Reasons to steer clear
But let’s come back down to earth for a second.
One of my biggest gripes with Peloton as an investment is that, aside from aesthetics, I’m not seeing much to separate it from the competition. There’s no ‘moat’ here, to coin a term from Warren Buffett. The fact that Peloton has now cut the price of its equipment on multiple occasions only serves to confirm this.
It’s also a sign that the trend for more people exercising at home may be coming to an end at the same time as the pandemic. Gyms bring an element of socialisation to fitness that staring into a screen can’t. That will be the case no matter how interactive Peloton tries to make its classes.
On top of this, Peloton has already faced a lot of negative publicity as a listed company. These have ranged from the highly serious (product recalls following injuries to pets and children) to the frankly ludicrous (TV shows featuring characters having heart attacks while using its machines). That’s hardly what I like to see as a prospective investor.
So, will I buy Peloton stock today?
It will be fascinating to see how all this plays out. Amazon clearly has sufficient clout to revitalise the company whereas Nike has arguably better knowledge of the industry.
Then again, yesterday’s initial excitement could easily dissipate just as soon as it arrived. After all, there’s no guarantee of a bid from either business materialising. In such a scenario, I’d be left holding stock in a company with dwindling revenue and a challenging outlook. That smacks of gambling to me. And that’s not the Foolish way.
I won’t be buying Peloton stock. Instead, I’m inclined to keep my powder dry for other opportunities.
If I were to buy a sold-off share, it would probably be this one.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Amazon, Apple, Nike, and Peloton Interactive. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
