I am on the lookout for some good dividend stocks and Vodafone (LSE:VOD) is on my radar. At current levels, the Vodafone share offers a yield of over 8%. Should I add the shares to my holdings?

The Vodafone share price is heading upwards

Vodafone is one of the largest telecoms services providers in the world. It has close to 180m customers worldwide and strong brand recognition. It is a mobile phone network provider here in the UK, as well operating fibre and fintech businesses throughout Europe and Africa.

As I write, Vodafone shares are trading for 135p. At this time last year, the shares were trading at similar levels, at 132p. In recent months, however, the Vodafone share price has been on an upward trajectory. Since the beginning of November, the shares have risen over 25%, from 106p to current levels.

Risky business

There are risks to consider with Vodafone. For one, its debt levels are rather high for my liking. When looking for dividend investments, I want a company to return profits to shareholders, and not have to worry about paying down high debt levels. High debt levels could negatively affect the Vodafone share price.

Also, Vodafone operates in a sector that requires lots of capital expenditure. The maintenance of telecoms networks as well as expansion towards new technology such as 5G is costly. These costs can often be covered by profits. Growth and expansion, as well as maintenance, can lead to better future performance. This performance could then lead to further dividend payments. On the other hand, higher capital expenditure could also lead to dividend cuts. After all, dividends are never guaranteed.

A dividend stock I’d buy

At current levels, the Vodafone share price looks a good opportunity for me to make a passive income through dividend payments.

Firstly, Vodafone has a good track record of recent and historic performance. although I do understand that past performance is not a guarantee of the future. Looking back, I can see revenue has been consistently over £4.3bn for the past four years. Coming up to date, 2021 FY revenue was impressive and forecasts for FY22 in a recent half-year report were lifted even further. As well, it seems free cash flow is also increasing. A Q3 report released last month reaffirmed my belief that FY22 earnings will rise substantially higher than FY21. Revenue grew by over 4% compared to the same period last year.

As well as performance, Vodafone’s position and global reach in a vast burgeoning market fills me with confidence that growth will continue. Its diversified operations throughout the world is impressive. I am particularly buoyed by its hefty presence in emerging territories in Africa.

Overall I would add Vodafone shares to my holdings at current levels. Despite credible risks, I believe the current dividend yield and future prospects ahead make it a good dividend stock for my holdings in the coming years ahead. The Vodafone share price has not yet returned to pre-pandemic levels but as performance begins to get close to these levels, I would expect the share price to head upwards too.

Jabran Khan has no position in any shares mentioned. The Motley Fool UK has recommended Vodafone. 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.

Key points

• NIO is underpinned by strong fundamentals
• Short-term issues impacting the share price should subside in the near future
• Impressive delivery growth suggests the company has further scope to expand in the long term

The electric vehicle (EV) sector has become rather crowded in recent years. NIO (NYSE: NIO), a Chinese EV automobile manufacturer, went public in September 2018 on the NYSE. Over the past year, the NIO share price has slumped by around 57%. This is due to a number of factors, like processing chip shortages. What I want to know, however, is whether the stock is ready to fly. Should I be adding NIO to my portfolio? Let’s take a closer look.

Fundamentals vs. competitors

A good barometer of the potential of growth stocks is the debt-to-equity (D/E) ratio. This is the relative proportion of equity and debt used for the purpose of financing the company. In NIO’s case, the D/E ratio is 0.8. This is higher than its American competitor, Tesla Motors, which has a D/E ratio of just 0.3.

This essentially means I view the NIO share price as a riskier investment, because more of its activities are financed by debt. On the other hand, if this aggressive strategy works, earnings can be extremely attractive because less equity has been issued in the process.  

Indeed, we may gain more insight on the NIO share price by looking at its revenue per share data. Currently, the company generates $3.32 per share in revenue. This is significantly above another EV stock, Lucid Group, which only earns $0.0004 in revenue per share. As a more mature company, however, Tesla dwarfs both NIO and Lucid, with revenue per share of $35.95.

Wider influences on the NIO share price 

NIO has evidently been working hard to maintain and increase delivery of its automobiles. In January 2022, the company delivered 9,652 cars. This represented an increase of 33.6% on a year-on-year basis. Compared with December 2021, however, there was a 7.9% decrease in output. This led the NIO share price to fall about 30%. 

Nonetheless, deliveries over the longer term have been growing at pace. December 2021’s delivery number of 10,489 was up nearly 50% on a year-on-year basis. Indeed, this increase motivated HSBC to become more upbeat on this stock. Specifically, it raised its target for the NIO share price from $53 to $54. With the stock currently trading at about $24, this positive long-term trajectory is a reason why I think this stock could soon soar.

With growth stocks suffering on the prospect of the US Federal Reserve raising interest rates, the NIO share price has not been immune from the recent sell-off. This has been compounded by processing chip supply chain issues in August and October 2021. However, these problems are short term and should subside relatively quickly.

The future looks bright for this growth stock, in my opinion. Deliveries are promising and the fundamental aspects are attractive for this young company. I am confident that recent issues affecting the share price should retreat and clear the way for further expansion. I will be buying the stock during this current dip in the market. 

The Motley Fool UK has recommended Tesla. 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.

The US tech sell-off has created a broad market panic overseas. In the first few weeks of 2022, big global indexes, including the FTSE 100, were forced into the red zone after news that the US Federal Reserve could increase interest rates to combat inflation. As Wall Street awaits the Fed’s guidance on interest rates, the tech-heavy NASDAQ index fell nearly 11% in January.

As we rip off the lockdown bandaid, the economic damage caused by a near two-year shutdown is evident. I think last week’s pullback was an expected market move given the unchecked tech stock explosion during the pandemic. The next few months could be a good time to study market recovery patterns. And I am tempted to look at UK stocks in established industries that I sidelined during the pandemic. Here are two FTSE 100 shares on my watchlist that I think could benefit in the coming months.

Retail boom in 2022?

I think 2022 could be great for retail. Foot traffic in malls and British high streets is expected to overtake pre-pandemic levels and athleisure brand JD Sports (LSE:JD) could benefit from the bounce back.

JD Sports’s expansion efforts into North America during the pandemic has been fruitful. Improved sales during the 22-week period up to 1 January 2022 has prompted the board to raise profit expectations for the current fiscal year by 17% to £875m. The company also expanded its e-commerce presence through a partnership with Clipper Logistics. In the first-half (H1) of 2021,  the JD Sports recorded revenue of £3.9bn. Profit before tax jumped a whopping 769% to £365m from £42m in H1 2020.  

However, the US expansion also means fending off competition from direct retail chains of brands like Adidas, Puma, and Nike. In 2022 alone, the JD share price is down 14.1% after the Competition and Markets Authority (CMA) ruled that JD would have to sell rival Footasylum, which it acquired for £90m in 2019. 

But the sports fashion retailer still looks like a great alternative to inflated tech stocks for my portfolio. And given that the latest Covid-19 variant is not as deadly, other sectors are already bouncing back. I think the sneaker subculture is becoming a global phenomenon that JD Sports can cash in on in the coming decade.

Luxury retail is here to stay

Global luxury retail made a huge comeback in 2021. Despite inflation concerns, shoppers splurged on designer products in record numbers, bringing the global luxury goods market to US$309bn at a compound annual growth rate of 5.4%. And analysts expect revenue in 2022 to cross $340bn. This is why British luxury brand Burberry (LSE:BRBY) is on top of my FTSE 100 watchlist in 2022.

As of January, the company is debt-free and operates with a huge 20%+ profit margin on its retail goods. The company has grown its brand image over the last decade through strategic marketing and has become a fashion staple.

However, I expect some changes to the Burberry product line after new CEO Jonathan Akeroyd takes over in April. A change in leadership is often a cumbersome process that could affect the brand’s performance in the short term.

But I am buoyed by how well luxury goods have bounced back from the pandemic and FTSE 100 heavyweight Burberry looks like an attractive recovery option for me right now. I am watching the brand closely and would consider an investment if revenue figures increase further.

Suraj Radhakrishnan has no position in any of the shares mentioned. The Motley Fool UK has recommended Burberry, Clipper Logistics, and Nike. 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.

Investing in a buy-to-let property can be a great method to produce a steady stream of income. Although many people have earned a lot of money with this strategy, it is not one I intend to pursue.

Here’s why.

The cost of buy-to-let

First and foremost, there is a significant, up-front financial commitment. I’d need a huge lump payment or a hefty mortgage to purchase a rental home in the UK, where the average property price is currently over £260,000. Compared to investing in shares, which I can start doing with just a few pounds, the barrier to entry is almost impossibly high for me.

The expenses of owning a buy-to-let home are also an important factor. For rental investors, mortgage and stamp duty rates are greater than for homeowners, and there will be an annual operating expense. That’s not even taking into account the cost of finding renters in the first place. With stocks and shares, I may have to pay a fund management charge or an investment platform fee, but these are minor and predictable in contrast.

Finally, there is the time investment required. A buy-to-let property isn’t a true passive income investment. Renting out a house is a business and it takes time and effort to make it work.

When I buy stocks, on the other hand, I am also investing in the time and effort of the company’s leadership. They are in charge of the company on behalf of all shareholders. I don’t have to do anything.

There are still a lot of advantages to a buy-to-let property. In the long run, property values have outpaced inflation. There is also a reasonably consistent market for rental houses, implying that investors will be able to generate an income stream at any time.

If I had the capital to spend, a buy-to-let might be a good option for me. But unfortunately, I don’t.

Alternative opportunities

Instead of purchasing real estate, I’m investing in firms that have global presence and portfolios of very well-known brands.

One of the companies I’m already invested in is Berkshire Hathaway (BRKB: NYSE). This conglomerate is owned and run by none other than Warren Buffett. Because of that, I have the benefits of a company that owns Apple, Coca-Cola, and Bank of America, and is managed by one of the most successful investors of all time.

However, one disadvantage of buying individual stocks and shares over a buy-to-let, is that I do not influence how a company is run. Owning a buy-to-let is far more work, but with that work comes control.

If I change my mind

Property can be a lucrative investment and if I ever think of adding it to my portfolio, I would invest in Lloyds Bank. Lloyds has been helping to build rental properties up and down the country and could see a significant return on investment in the years to come.

James Reynolds owns Berkshire Hathaway (B shares). The Motley Fool UK has no position in any of the shares mentioned. 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.

Royal Mail (LSE:RMG) shares are a popular investment for both small investors and the professionals. In fact, just over 34% of the company is owned by only 10 funds. That must mean it’s a good stock to own, right?

Not necessarily. Quite often, popular stocks don’t deliver the best returns. So, let’s explore how Royal Mail has performed since going public in late 2013 and whether I should be considering this business for my own portfolio.

A near-decade of Royal Mail shares

Since October 2013, the share price has gone from 450p down to 429p today – a 6% drop. Needless to say, that’s pretty abysmal. By comparison, the FTSE 100 has climbed 12% over the same period. And if I take into consideration the effects of inflation, this performance only gets worse.

But of course, this is only looking at the capital gains side of returns. What about dividends? A £1,000 investment in 2013 would have given me 222 shares (ignoring transaction fees). Assuming I didn’t buy or sell any more over the last eight years, I would have received around £268 in passive income.

This brings my overall investment return to 20.8%. That certainly sounds a lot better. But on an annualised basis, this translates into a measly 2.7% return. That’s barely beating the 2.5% average inflation over the same period.

So, all things considered, Royal Mail shares have frankly delivered pretty mediocre returns, despite their popularity. But will that story change in 2022 and beyond?

What does the future hold?

The performance of Royal Mail shares would have actually been a lot worse if it wasn’t for its recent surge. In fact, over the last two years, the stock is up over 140%!

A lot of this gain is as a direct result of the pandemic. As the demand for e-commerce solutions skyrocketed, management was able to prioritise parcels delivery rather than letters. And it’s proven to be a far more lucrative venture, with revenue jumping by double-digits and profits tripling.

The company is placing particular focus on its GLS division which exposes the group to international opportunities. As it stands, analyst forecasts put operating profits for GLS to be around £350m by the end of March this year. And management has a target of €500m (£422m) over the next three years. That’s more than GLS and Royal Mail made combined in 2019!

Time to buy?

While the historical performance may have been tepid, the future for Royal Mail shares looks far brighter, in my opinion.

There are obviously some risks to consider. International expansion has its own set of challenges, but maintaining margins could be problematic with the cost of labour going up. And since the company doesn’t exactly have the best track record of keeping its employees happy, this could create several headaches. 

However, suppose the company can hit its targets? In that case, I believe Royal Mail shares could be a considerably better investment moving forward than they were in the past. Yet, as promising as that sounds, I’m not tempted to add any shares to my portfolio today. Why? Because I think there are plenty of other investment opportunities to profit from the e-commerce boom without becoming exposed to the risks of the ongoing labour shortage.

Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

Here are a couple of penny shares I would consider adding to my portfolio at the moment. I like them because, although the shares each trade for less than a pound, I think the underlying businesses look strong.

Lookers

Car dealership Lookers (LSE: LOOK) has seen an incredible run lately. I have previously explained why it had an outstanding January, with the Lookers share price soaring 39% in a month. Over the past year, the shares are up 153%.

Despite that, they continue to trade as penny shares. Even after the gains, I continue to think Lookers is cheap. The book value of its property is around 78p per share. But the business itself is a key asset on top of its property holdings. The company has seen strong customer demand and expects that last year will result in a record underlying profit before tax. Meanwhile, the recent purchase of almost a fifth of the company by an industry giant suggests that it sees upside to the current Lookers valuation.

Lookers has said it plans to reintroduce its dividend this year. If it does so, that could provide another fillip for the share price. There are risks here, too. For example, tightening demand of new cars could hurt revenues. The costs of dealing with ongoing supply chain challenges could eat into profits.

But with its established dealer brands, property portfolio, and strong business outlook, I continue to see value in Lookers. I would happily buy it for my portfolio at the current share price.

Assura

I like the business model of healthcare landlord Assura (LSE: AGR). But last time I looked at the shares I felt that the dividend yield was good, not great. The stock has fallen around 9% since then, making for a 14% decline over the past year. A falling share price has led to an increased yield.

I think that makes Assura more attractive as a possible addition to my portfolio. The shares now yield 4.6%. Assura pays dividends quarterly and has been raising the payout annually, although there is no guarantee it will continue to do so.

In a trading update last month, the company said that it had seen “another strong quarter of progress”. Assura has continued to expand its portfolio. It reckons the healthcare backlog created by the pandemic could increase the need for healthcare facilities, possibly boosting its revenues and profits.

The strategic focus on healthcare is what interests me about Assura. I expect demand for healthcare facilities to remain high for years or decades to come. Tenants such as doctors’ surgeries are likely to pay their rent. So Assura’s growing portfolio could be very lucrative. One risk is increased competition leading to higher prices for new property purchases. That could hurt the firm’s profitability.

But with an attractive asset base, appealing strategic focus, and knocked down share price, I would now happily add Assura to my portfolio.

My move on these two UK penny shares

I would happily consider both of these shares for my portfolio. That is not because they trade as penny shares. Rather, in each case I see an attractive business with the potential to produce long-term profits that could hopefully reward me as a shareholder.

Christopher Ruane has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

The easyjet share price looks attractive at 273p, but I’m concerned about its ability to keep flights full during 2022, as it brings capacity back to pre-pandemic levels.

Avoiding the airlines, I was curious to see whether there were other investment options to take advantage of the return of leisure travel. What about the airports and train stations themselves?

For anyone who has plucked up the courage in recent months to book an air ticket, don a mask and head off to warmer climes, it will have come as a shock to see what has happened to our busy airports.

The days of crowded bars, restaurants and lounges are a distant memory. It is more likely that travellers passing through the UK’s regional airports in recent months will have been greeted by vacant spaces, apologetic notices on the doors of closed food outlets, and small groups of passengers discreetly attempting to avoid each other.

My own recent experience at Gatwick was, however, a little more encouraging. Whilst the cavernous South Terminal remains as a mothballed shell, the buzz at the North Terminal was definitely more upbeat. This gave me some encouragement about the sector’s ability to recover its mojo by the time summer rolls around.

For me, an alternative option for exposure to the sector can be found through SSP Group (LSE: SSP), one of the leading worldwide operators of travel food concessions, to be found in multiple airports and railway stations across five continents.

In 2019 SSP was flying high, with its share price in excess of 600p and profits of over £200m. A year later, however, the company’s activities had been decimated by the unforeseen impact of Covid’s first wave.

Management have nevertheless shown resilience and utilised government support, in the form of furlough payments and emergency loans, to tide them through the worst of the pandemic. Negotiations with landlords and a successful rights issue in April 2021 allowed them to reduce leverage and re-position the business for the post-pandemic period.

A recent trading update — on 4^th February — informed us that trading in the company’s main markets (UK, Europe and North America) had regained ground, to between 63% and 79% of 2019 levels. Nearly three quarters of its total outlets are now open again, and there are plans for new expansion. Some of these new opportunities are likely to be taking advantage of the failure of other operators over the past two years.

The company is projecting a return to 2019 trading levels by 2024 and I like the fact that its portfolio of brands is focused on the leisure (rather than business) traveller.

Whilst I don’t believe that shares will return quickly to their 2018/2019 levels – and there remains a risk that new coronavirus variants might emerge and delay the world from travelling freely again – I am confident that SSP has strong upside potential over the next 12 months.

Fergus Mackintosh owns shares in SSP Group. The Motley Fool UK has recommended SSP Group. 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.

In 2020 the Greatland Gold (LSE:GGP) share price erupted, climbing from 1.93p to 32.5p. That’s an extraordinary return of nearly 1,600% in the space of a year. But since then, the share price has been on a bit of a downward trajectory. In fact, over half of this gain has been wiped out in the last 12 months alone.

What happened? And will the stock recover in 2022 or beyond? Let’s explore.

The rise and fall of the GGP share price

As a reminder, Greatland Gold is a late-stage exploration business operating out of Western Australia. The GGP share price quickly gained momentum after the group discovered a massive gold and copper deposit. A mineral resource estimate placed the total at 4.2 mega ounces of gold equivalents. The project is called Havieron, and based on today’s prices, it’s worth around £5.6bn!

This revelation was understandably exciting. So, it’s easy to see why the share price exploded as a consequence. But despite the company releasing further encouraging drilling results, the stock hasn’t been able to maintain its gains.

This is also hardly surprising to me, given the momentum originated from expectations rather than fundamentals. Yes, the company continues to deliver solid evidence of a literal mountain of wealth. But extraction won’t actually start until 2024. And that’s assuming the complete feasibility study to be released in December this year comes back with positive news.

In my experience, expecting most investors to remain patient for four years is a big ask. So, I’m not surprised to see the GGP share price tumble after the initial excitement died down.

Another source of growth?

Beyond its flagship Havieron project, Greatland Gold has another potentially exciting opportunity up its sleeve. The final results from its Juri Joint Venture 2021 exploration programme recently came in.

The company encountered a 60-metre-thick anomalous zone of low- and medium-grade copper-gold mineralisation. This potentially means it may have just discovered the edge of a larger higher-grade deposit. Meanwhile, a ground electromagnetic survey was completed, identifying additional targets for the group’s 2022 drilling programme.

This is obviously encouraging news. And there’s speculation that the Juri Joint Venture could be a second Havieron. However, this project is still in its infancy, with plenty that can still go wrong. Even if the 2022 drilling results come back positive, it will be years before any extraction can start taking place.

Will the stock soar in 2022?

I don’t think the GGP share price will be returning to its 2020 highs this year. Once the feasibility study for Havieron is completed in December, it could reignite investor interest, providing no viability issues are uncovered. It might soar, of course. But even if that’s the case, there’s no guarantee that any gain in the share price will be sustainable. This is a pre-revenue business, after all. And it will remain that way until it starts digging precious metals out of the ground.

That’s why I don’t expect a lasting surge in the price and won’t be adding any shares to my portfolio at this stage.

Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

With investors enduring a tough start to 2022, I’m been taking a closer look at FTSE 100 stocks that tend to experience less price volatility relative to the market.

These are known as low beta stocks. In theory, anything with a beta of below one should move less in line with the index (which always has a beta of one). By contrast, stocks with a beta of over one could give investors a more bumpy ride. 

FTSE 100

The essential nature of what National Grid (LSE: NG) does — “connecting millions of people to the energy they use” — makes the company a potentially great stock to hold at times like these. The Grid has a beta of just 0.3, according to data from Stockopedia. This should make it far less prone to violent market moves.

Another attraction is the dividend stream. In its current financial year, the company is expected to return 50.8p per share to its owners. Using today’s share price, that gives a yield of 4.7%. So, even if it did fall back, there’s a nice payout to compensate. 

The P/E of 17 is higher than the five-year average of just under 14. However, this makes sense considering how rattled investors have been recently. One potential drawback is that the shares probably won’t fly when markets recover.

Resilient sector

As sectors go, anything to do with healthcare tends to hold its own when investors get skittish. Hence, a company like GlaxoSmithKline (LSE: GSK) may offer me some protection. In line with this, GSK has a beta of 0.6. 

The shares are up slightly so far this year, although this may be more to do with Unilever sniffing around its consumer healthcare business. It will be interesting to see what under-fire CEO Emma Walmsley has to say about the rejected bid when the company reports on Wednesday.

At 3.3%, GSK stock comes with a decent dividend yield. It’s also cheaper than FTSE 100 peer AstraZeneca at less than 14 times earnings. That said, its drugs pipeline could do with a shot in the arm and remains a potential risk. 

‘Buy again’ brands

Speaking of consumer goods companies, a final stock I’d consider buying to mitigate market volatility would be Reckitt (LSE: RKT).

Like the other stocks mentioned, Reckitt has a low beta (0.3). It also possesses a bursting portfolio of ‘sticky’ hygiene, health and nutrition brands. While the rising cost of living can force people to reel in their discretionary spending, products that keep things clean and safe are unlikely to be sacrificed, especially following a global pandemic. 

My only concern with Reckitt is that it hasn’t learned from its horrible acquisition of the infant formula business from Mead Johnson a few years ago. This brings me to a vital point about low-beta stocks.

No guarantees

A low-beta value now does not guarantee anything about the future performance of a company’s share price. Before the Financial Crisis, FTSE 100 juggernauts like Lloyds Bank were regarded as relatively safe destinations for investors’ money. That hasn’t worked out well. 

Therefore, a vital point to grasp is that beta values change over time. Nor are they a replacement for in-depth research. This is why I will continue to diversify my portfolio across all sorts of quality companies, thereby giving myself a better chance of growing my wealth slowly but surely over the long term.

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended GlaxoSmithKline, Lloyds Banking Group, Reckitt plc, and Unilever. 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.

Peloton (NASDAQ: PTON) soared during the pandemic, due to the closure of gyms and the need to exercise more at home. Indeed, Peloton stock managed to reach over $160 at its peak, giving the company a valuation of around $50bn. Nonetheless, since the reopening of gyms, and reduced demand for its products, Peloton stock has slipped back to around $24, giving it a market cap of around $8bn. This ‘low’ valuation has led to reported interest from both Nike and Amazon, a factor that’s driving the Peloton share price rto soar over 20% today.

Takeover news

Over the weekend, it was reported that Nike and Amazon were separately evaluating bids for Peloton. Further, there’s also a high possibility of other buyers, including Apple and other large private equity firms. Despite this, it’s all at a preliminary stage and there haven’t been any official talks with Peloton yet. In addition, an Amazon spokesperson declined to comment on “rumours and speculation”.

Any takeover news is a good sign for the company, however for two reasons. Firstly, a takeover will nearly always be at a premium to the current share price, meaning that the shares are likely to soar after any official offer. This is why Peloton stock is up more than 20% today. Secondly, this interest demonstrates that the Peloton share price may be too low. So even if there’s no takeover, this is still a positive sign that the sell-off may have been overdone.

Yet there are some significant hurdles before a deal can be done. For one, the company has a dual-class shareholder structure, which means that co-founder John Foley has majority voting rights on all big decisions, including takeovers. If he doesn’t want a takeover to happen, other shareholders can’t force him.

The future for Peloton stock

After a series of excellent results during the pandemic, revenues have started to decline recently. In fact, in the first quarter of FY22, Peloton tooj in ‘only’ $805m. A slightly more encouraging $1.14bn was reported for the second quarter. Both these results were still far below the $1.26bn reported in Q3 of FY21. Therefore, it’s clear that a lot of the demand was related to the pandemic, and as things continue to return to normality, the situation for Peloton may deteriorate further.

News that the company was considering cutting its workforce and production output due to the reduced demand is also a worry. This is because it lessens the likelihood that the company will ever be able to reach profitability.

Nonetheless, there are still several positives associated with Peloton stock. For one, the monthly churn rate (the number of subscribers leaving each month) was just 0.79% in the second quarter. This demonstrates that there’s still enthusiasm for Peloton’s products.

Overall, I believe that it may be slightly too cheap, and the takeover news is clearly a major positive. But it’s not enough to make me buy. I prefer growth stocks that are actually seeing growth. Peloton has far too many problems, and profitability doesn’t seem close at all. Therefore, I’ll be watching from the sidelines for the time being.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Stuart Blair owns shares in Apple. 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.