Peloton (PTON): short opportunity?

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Lucky C
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Peloton (PTON): short opportunity?

Post by Lucky C »

I don't short any stocks but Peloton (NASDAQ: PTON, currently $139.84) looks like a good opportunity to short (until perhaps Q4 earnings announcement) in my amateur opinion. Reason is basically it's priced as an extreme growth stock, but after some rudimentary searching I don't see evidence that holiday sales should be growing much since last Christmas.

Peloton-related Google searches saw a big spike before Christmas last year but not this year - seem to be growing more slowly or plateauing over the past year. People who were thinking about buying it probably bought one during the Spring lockdowns with the help of their stimulus checks, so sales may actually look better the first half of this year than the second half. If people want to be more social and use gyms more next year, that's a major headwind for PTON growth.
https://trends.google.com/trends/explor ... st,peloton

Growth of subscribers to the Peloton subreddit, /r/pelotoncycle looks to have slowed down since October despite more people likely exercising indoors as the winter weather is arriving.
https://subredditstats.com/r/pelotoncycle

Yet the price is still making new highs at crazy high valuations! It has momentum going for it, but can it back that up with continued sales growth? Will the price hold up when this current cycle of glamour stock euphoria inevitably turns down?

Also, the stock has seen a lot of insider selling recently, with the CEO only starting to sell (as far as I can see) in November and again last week.

Anecdotally, I recall being bombarded by Peloton ads a couple years ago when they needed to get their name out, but lately I haven't see any. Are they already to saturate their somewhat niche market of people who want a $2000 exercise bike plus a subscription that costs more than some gym memberships?

I know this is just a gut feeling from someone who doesn't really know how to properly short stocks, but a few simple searches appear to me to show that there's a decent chance Q4 sales could be disappointing. Upside seems more limited than it was just a few months ago as greed/FOMO for hot stocks like PTON appear to be currently so extreme that prices are getting pretty stretched in the short term.

Any counter-arguments would be appreciated as I know I would need to learn a lot about shorting stocks before I could even try to profit at it.

Peanut
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Re: Peloton (PTON): short opportunity?

Post by Peanut »

The upper middle class is reportedly going to spend more than they ever have before on this Christmas, so the numbers this season may surprise you.
What is their global plan?
If you can't account for why it's making new highs, you definitely can't justify shorting it.

(I would personally never short a stock unless I had real insider information.)

ertyu
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Re: Peloton (PTON): short opportunity?

Post by ertyu »

Lucky C wrote:
Sun Dec 20, 2020 5:31 pm

Any counter-arguments would be appreciated
What's your catalyst? Anything and everything is overvalued. I just listened to Chanos talk to Mike Green on youtube, and both of them seemed to agree that things can be, and most importantly stay, crazy for a long time. I have not researched pton, but I believe your thesis is correct: the company is likely not worth its current valuation, and growth is likely slowing. But what would make it start trending down in an overall market that, at least by consensus, is expected to trend aggressively up?

Lucky C
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Re: Peloton (PTON): short opportunity?

Post by Lucky C »

I guess the opportunity would be in a long-short portfolio where you could be long a stock that is also trending up, is also profitable with earnings growth, and is also in the leisure industry. A quick screen presents me with JOUT (Johnson Outdoors) with P/E of 19 and P/S of 1.7.

JOUT is 31% above its SMA200 (strong momentum) and PTON is 97% above its SMA200 (strong but overbought?). JOUT just broke out last week and ended up 6% Friday alone (though may hit some resistance now at its previous high set in 2018), whereas PTON ended the week showing some resistance right around its previous high a couple months ago.

This is also a bet on outdoors/socializing vs. indoors/home, but the differences in valuations are so large that you could profit just by value vs. growth starting to mean revert, regardless of any out vs. home mispricing.

So based on this admittedly quick/dirty/superficial analysis, something like long JOUT with some smaller position short PTON seems like it could work, without having to be net short on stocks that are trending up.

white belt
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Re: Peloton (PTON): short opportunity?

Post by white belt »

I know very little about the specifics of Peloton’s balance sheet, just that all of my yuppie friends in a major northeast city bought bikes during COVID. I suspect they could have another bump in sales over the next few months due to gyms closing again in many states.

I agree with ertyu’s take that everything is overvalued right now due to passive flow dynamics and I don’t see why that trend would stop anytime soon. Trying to apply value principles to individual stocks in this market goes out the window if the flows continue as they have.

Lucky C
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Re: Peloton (PTON): short opportunity?

Post by Lucky C »

Perhaps the only thing keeping everything so overvalued is that speculators don't yet see a reason why the trend would change.

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unemployable
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Re: Peloton (PTON): short opportunity?

Post by unemployable »

Oooooh, I like the zero-cost collars (risk reversal or splat). Sell the Jan 150 calls, buy the 130 puts for example.

Although I wouldn't do Jan options. I think 2021 is going to be a very good year for "sell in May and go away".

Lucky C
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Re: Peloton (PTON): short opportunity?

Post by Lucky C »

Yeah I'm not too optimistic about stocks in 2021 in general. Regardless of what the market does next year, I can't help but think that PTON's short-term growth is due to decelerate a bit. Are there really tons of people out there with expendable money who would have gone through the whole stay home experience, gym closures, etc. all these months, with stimulus checks in hand to buy whatever they wanted to help them deal with it... who DIDN'T buy a Peloton yet, and yet now with the end of the pandemic in sight they plan on buying one for Christmas?

It doesn't make sense to me that their sales would grow a lot in Q4, yet they are now valued at 5X what they were in the spring when year-over-year sales growth was perhaps strong enough to justify that 80% lower price. I know, I know, prices on such short timelines aren't supposed to make sense. I'm just saying that if we are in a stock bubble that bursts next year, I would expect PTON would have a lot farther to fall than a more reasonably priced stock like JOUT. For PTON to outperform other lower-priced stocks in the same industry in 2021, momentum/growth (or simply "hot stocks") would have to continue to outperform "value" stocks for another whole year. It could happen, but that would make for one hell of a bubble.

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Lemur
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Re: Peloton (PTON): short opportunity?

Post by Lemur »

The opportunity cost of betting on a stock that goes down is losing an opportunity to play something that will go up. With the printers still rolling, and herd immunity on its way in 2021, I would not make this bet from a macro standpoint alone. Better to find ‘stocks go up’ opportunities IMO.

Alphaville
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Re: Peloton (PTON): short opportunity?

Post by Alphaville »

I don't mess with options (yet), but I bought a (cheap) exercise bike for the pandemic. As soon as this plague is over I'm selling or giving away the monstrosity and hitting the road on a real bike again. But I'm not your average consumer. Nevertheless, people will be itching to go out, not stay indoors, by next spring/summer. Similar situation to the recent crazy door dash ipo btw. Overvalued today, but tomorrow? We"ll see...

bostonimproper
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Re: Peloton (PTON): short opportunity?

Post by bostonimproper »

Agree with the analysis, but as others have said, the market can stay irrational longer than you can stay solvent.

Gilberto de Piento
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Re: Peloton (PTON): short opportunity?

Post by Gilberto de Piento »

I dont know anything about the shorting stocks aspect of this but I think Peloton has more competitors than they used to. Lots of companies are making similar connected work out from home equipment with a monthly subscription model.

Seppia
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Re: Peloton (PTON): short opportunity?

Post by Seppia »

Tesla was an obvious short based on normal metrics about 700% ago.
Don’t.

Alphaville
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Re: Peloton (PTON): short opportunity?

Post by Alphaville »

Seppia wrote:
Mon Dec 21, 2020 9:57 am
Tesla was an obvious short based on normal metrics about 700% ago.
Don’t.
does peloton have its own charismatic cult leader driving up the price though?

just asking because i don't know the company

Toska2
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Re: Peloton (PTON): short opportunity?

Post by Toska2 »

Its a platform thats between Uber and Onlyfans. I would guess cute athletes have their own draw. They (companies) themselves produce and own little. How much of market saturation idk, I am not their target audience.

Lucky C
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Re: Peloton (PTON): short opportunity?

Post by Lucky C »

Gilberto de Piento wrote:
Mon Dec 21, 2020 9:37 am
I dont know anything about the shorting stocks aspect of this but I think Peloton has more competitors than they used to. Lots of companies are making similar connected work out from home equipment with a monthly subscription model.
Yeah I've been seeing ads for the Lululemon Mirror. Similar product and target customer even though it's in a very different package.

Alphaville
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Re: Peloton (PTON): short opportunity?

Post by Alphaville »

all this stuff about social network workouts it utterly repellent to me

i've always exercised to get away from others :lol:

next: swimming google goggles

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unemployable
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Re: Peloton (PTON): short opportunity?

Post by unemployable »

PTON is buying Precor and the stock is up twelve bucks on the news. PTON is now worth more than Ford.

When AOL bought Time Warner it turned out to be the top.

Toska2
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Re: Peloton (PTON): short opportunity?

Post by Toska2 »

Going back to last year's spike. I remember Peloton having a notoriously bad chistmas commercial. If I am reading the op right, he thinks that those google searches are a positive leading to more sales. If those previous searches are a negative or neutral, then a lack of a bump now doesnt mean much.

Lucky C
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Re: Peloton (PTON): short opportunity?

Post by Lucky C »

Oh yeah I remember that! You're totally right about the Google searches - it's a spike from the outrage which may have hurt or helped Christmas sales, who knows. At any rate it appeared to me that even omitting that spike, internet interest seemed to be growing more linearly since the lockdown peak rather than exponential growth. But probably too short of a time frame to judge.

Buying Precor sounds like it could have been a good sell the news opportunity, but not so far - up another 10% today pre-market! It could instead be the start of PTON's transformation from a (basically) one product company to monopolizing the high end fitness industry, which I suppose is why everyone is so bullish on it now.

What made me pay attention to PTON initially was seeing it as the #1 holding in Vanguard's Small Cap Value fund (VSIIX) a few months ago. It is still in the fund now but at the #11 position for some reason even though its market cap has grown substantially. Small cap is usually defined as $2B market cap max but it is now at $43B... neither small cap nor value!

Actually the top 10 funds in Vanguard's Small Cap Value are all valued at over $10B currently. At least they are only 5-6% of the overall portfolio so there's bound to be some actual small cap value stocks lower on the list. But I wouldn't buy VSIIX or VBR if I truly wanted small cap value.

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