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Peloton Stock Is Likely to Fade as Quickly as a New Year’s Resolution

When investors abandoned Peloton (NASDAQ:PTON) stock in droves after the company posted quarterly results on Nov. 4, people should have expected it.
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This article was originally published by Investor Place

When investors abandoned Peloton (NASDAQ:PTON) stock in droves after the company posted quarterly results on Nov. 4, people should have expected it.

Source: JHVEPhoto / Shutterstock.com

Since July, when PTON stock peaked, bulls failed to take the share price above the 50 and 200 day moving averages. The leisure stationary exercise bike maker suffers from a troubling negative trend.

In an almost post-Covid world where international travel resumes, consumers are questioning the need for an expensive bike that costs thousands of dollars.

Getting virtual classes at home has a subscription fee. As people tire of the same routine, Peloton faces increasing headwinds.

Disastrous Results Hurt PTON Stock

In the first fiscal quarter, Peloton posted revenue growing by only 6.2% from last year to $805.2 million.

It lost $1.25 a share (on a GAAP measure). The business momentum slowed despite connected fitness subscriptions growing by 87% to $2.49 million. It ended the quarter with more than 6.2 million subscribers.

The firm posted a few strong key metrics. For example, net monthly connected fitness churn was only 0.82%. It retained 92% in the last 12 months.

Furthermore, its connected fitness subscription workouts grew by 55% to 120.5 million. Unfortunately, workouts per connected fitness subscriptions fell from 20.7 last year to 16.6 in Q1.

The lower customer engagement forced Peloton to impose a hiring freeze and lower its forecast. In the second quarter, the company expects revenue in the range of $1.1 billion to $1.2 billion.

It will lose money again, as it expects a negative $325 million to negative $350 million adjusted EBITDA.

For FY 2022, Peloton expects a negative $425 million to a negative $475 million adjusted EBITDA.

Cash Burn a Non-Issue

On Nov. 16, Peloton announced a stock sale. It will underwrite 23.913 million Class A common stock for $46 a share. PTON stock briefly rallied after the capital raise but ended lower a day later. It trades just shy of $43 today.

The company has a strong, recognizable brand name. Speculators are betting that the fad is not fading yet.

The company’s cost control constraints will slow the quarterly cash burn. Loaded with over $1 billion in equity, the bike firm has plenty of capital to pivot the business, invest in growth, and re-ignite its business momentum.

Momentum investors who bet on the rising fad for returns should walk away. The business optimism shifted from neutral, after the pandemic.

Now it is excessively negative. Speculators could bet that Peloton may increase subscriptions and customer workout activity. During the winter months, people may renew their interests in exercising at home.

Peloton’s stock rally may prove short-lived. Shares trade at a high market capitalization of almost $15 billion and a price-to-sales ratio of 3.6 times.

Nautilus (NYSE:NLS) trades at 0.33 times P/S. Its market capitalization is just $240 million. Nautilus may trade at a severe discount, but it is on a sustained downtrend like Peloton stock.

Bearish Chart

MACD signaled a sell on Peloton
Click to Enlarge
Source: https://stockrover.com

The volume increased as Peloton’s stock price fell, a bearish signal.

In addition, its moving average convergence divergence collapsed after the earnings report.

In the chart, the blue line crossed over below the exponential moving average.

Investors need to look at Peloton’s stock price before it broke out last April 2020. As the pandemic unfolded and stock markets crashed, Peloton traded as low as around $20. This time, selling pressure may ease and the stock could settle at around $40.

Peloton’s fair value will depend on management’s ability to accelerate business growth. Investors are doubtful.

On the conference call, Chief Financial Officer Jill Woodworth assured shareholders that it did not need to raise capital.

“We don’t see the need for any additional capital raise based on our current outlook,” she said. “As we mentioned, we’re taking significant steps to adjust our expenses across COGS and OpEx with this revised revenue guidance. And we have a lot of levers to pull.”

Two weeks after the conference call, the company realized it needed to take advantage of the still forgiving markets. Easy access to capital may end.

The Federal Reserve will soon raise interest rates to slow inflation. That would hurt stock prices and increase the cost of debt.

Strong Balance Sheet

Before the stock sale, Peloton had $924 million in cash. With more cash available, the firm may plan its business strategy over the next decade.

It will need to re-align its product mix. This could include offering lower-priced bikes or selling play-as-you-go classes instead of subscriptions.

Any new promotion, subscription-pricing plan, or introduction of a new product will cost capital.

Peloton will need to spend on research and development. This will increase quarterly losses and will only pay off in the future.

Your Takeaway

Consumers still have plenty of disposable income.  That could change. Inflation rates are soaring. The Fed may realize this is not transitory. People will then ask why they need a $2,000 stationary bike.

Peloton has plenty of planning to adjust to the changing customer demands. Wait for the company to post better results in future quarters before buying this stock.

On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Chris Lau is a contributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get original insight that helps improve investment returns.

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Author: Chris Lau

Economics

Unemployment Falls to 4.2 Percent in November as Economy Adds 210,000 Jobs

The rise in the index of aggregate hours would be equivalent to more than 630,000 jobs with no changes in workweeks.
The post Unemployment Falls to 4.2…

The rise in the index of aggregate hours would be equivalent to more than 630,000 jobs with no changes in workweeks.

The unemployment rate fell 0.4 percentage points in November, even though the economy added just 210,000 jobs. The drop in the unemployment rate went along with an increase in the employment-to-population ratio (EPOP) of 0.4 percentage points, corresponding to a rise in employment of more than 1.1 million in the household survey. The unemployment rate had not fallen this low following the Great Recession until September 2017.

The 210,000 job growth in the establishment survey is slower than generally expected, but it is important to note that it went along with an increase in the average workweek. The index of aggregate hours in the private sector increased by 0.5 percent in November. This would be the equivalent of more than 630,000 new jobs, with no change in the workweek.

This fits a story where employers are increasing hours since they are unable to hire new workers. We are seeing a reshuffling of the labor market where workers are looking for better jobs and employers are competing to attract workers, especially in lower paying sectors.

Declines in Unemployment Largest for Disadvantaged Groups

Nearly every demographic group saw a drop in unemployment in November, but the falls were largest for the groups that face labor market discrimination. The unemployment rate for Blacks fell by 1.2 percentage points to 6.7 percent, a level not reached following the Great Recession until March 2018 and never prior to that time. For Hispanics, the decline was 0.7 percentage points to 5.2 percent.

The unemployment rate for workers without a high school degree fell by 1.7 percentage points to 5.7 percent. By contrast, the unemployment rate for college grads fell by just 0.1 percentage points to 2.3 percent, 0.4 percentage points above its pre-pandemic low. The 5.7 percent rate for workers without a high school degree is 0.7 percentage points above the pre-pandemic low, although the monthly data are highly erratic.

The unemployment rate for people with a disability fell by 1.4 percentage points to 7.7 percent, while the EPOP rose by 1.1 percentage points to 21.5 percent. The latter figure is almost 2.0 percentage points above pre-pandemic peaks, indicating that the pandemic may have created new opportunities for people with a disability.

Share of Long-Term Unemployment Edges Up

The share of workers reporting they have been unemployed more than 26 weeks edged up slightly to 32.1 percent. It had been falling rapidly from a peak of 43.4 percent in March. It was under 20.0 percent before the pandemic hit. On the plus side, the share of unemployment due to voluntary quits increased by 1.0 percentage points to 12.5 percent. This share is still low for a 4.2 percent unemployment rate, but the high share of long-term unemployed depresses the share attributable to quits.

Wage Growth Still Strong for Lower Paid Workers

The average hourly pay of production workers is up 5.9 percent year-over-year. It has risen at a 6.6 percent annual rate comparing the last three months (September to November) with the prior three months (June to August). For restaurant workers the gains have been even larger, with the average hourly wage for production workers up 13.4 percent year-over-year, although the annual rate of growth slowed to 5.7 percent comparing the last three months with prior three months. Wages for the lowest paid workers are far outpacing inflation.

Manufacturing and Construction Both Add 31,000 Jobs in November

This continues a pattern of strong job growth in these sectors. Employment in construction is now down 1.5 percent from pre-pandemic levels, while manufacturing employment is down 2.0 percent.

Employment Lagging in Hard Hit Sectors

By contrast, employment is still lagging in the hardest hit sectors. The motion picture industry shed 3,400 jobs in November. It is now down 21.9 percent from pre-pandemic level.

Low-wage sectors are clearly having trouble attracting workers. Nursing and residential care facilities shed 11,000 jobs in November. Employment is now down 423,700 jobs (12.5 percent) from pre-recession level, accounting for most of the drop in health care employment. Childcare lost 2,100 in November, while home health care lost 300 jobs.

Retail lost 20,400 jobs in November. Employment in the sector is now down 1.1 percent from pre-pandemic levels; although the index of aggregate hours is up 1.1 percent.

Restaurants added just 11,000 workers, while hotels added 6,600. However, the index of aggregate hours for the leisure and hospitality sector (which comprises the two industries) rose 0.6 percent. This corresponds to a gain of almost 800,000 jobs with no change in the length of the workweek.

State and Local Governments Shed Another 27,000 Jobs

State and local government employment is now down 951,000, or 4.8 percent from pre-pandemic levels. This is almost certainly a supply side story, where these governments cannot easily raise pay to compete with the private sector in attracting workers.

Overwhelmingly Positive Report

This is another overwhelmingly positive report. The unemployment rate is more than a full percentage point lower than what CBO had projected before the passage of the American Recovery Plan. The most disadvantaged workers are seeing the greatest benefits in pay and employment opportunities. The economy looks to be very strong as long as another surge in the pandemic doesn’t derail it.

CEPR produces same-day analyses of government data on employment, inflation, GDP and other topics.
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The post Unemployment Falls to 4.2 Percent in November as Economy Adds 210,000 Jobs appeared first on Center for Economic and Policy Research.


Author: Karen Conner

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Economics

NFP React: Stocks lower after soft NFP report and Omicron jitters, No one named an FX manipulator

US stocks declined after a soft employment report and as traders remain on edge over the uncertainty with the Omicron variant. The next couple of weeks…

US stocks declined after a soft employment report and as traders remain on edge over the uncertainty with the Omicron variant. The next couple of weeks will remain volatile as the focus falls on the latest inflation report, the December 15th FOMC meeting, and further clarity on the impact with the Omicron variant. 

A record ISM Services reading did not excite traders, perhaps they focused more so on the supplier deliver delays, wage increases, and labor shortages. Technology stocks are getting hit hard as Facebook, Microsoft, and Square sell-off.  Didi shares fell on delisting plans and that raised the risk that other Chinese companies would follow.  

NFP

The US economy is adding jobs at a slower pace as employers are starting to have success luring people back to the labor force. If wages continue to rise, that will be the key for companies to reach their hiring targets. 

The November employment report showed US employers added 210,000 jobs, a miss of the 550,000 consensus estimate and well below the upwardly revised prior reading of 546,000 jobs. A headline miss with the nonfarm payroll report, may be mostly attributed to seasonal factors. The underlying components make this labor market report not so bad as people are coming back to the labor force, with the participation rate improving from 61.6% to 61.8%.

Wage pressures may be slowing as average hourly earnings dipped in November from 0.4% to 0.3%, but some of that could be attributed to the weakness in lower paying hospitality jobs. 

The Fed may view this as a positive employment report as minority unemployment improved significantly and the participation rate is now only 1.5 percentage points lower than in February 2020. Fed rate hike expectations are settling around two rate hikes next year. The headline jobs miss takes away momentum from an accelerated tapering but allows them to increase the taper pace by $5-10billion to the monthly pace. 

FX

The Treasury has placed 12 countries on a foreign exchange watchlist, bringing back China to the list, while adding Japan, Switzerland, and Germany.  The Treasury refrained from calling any country a currency manipulator, but both Vietnam and Taiwan will get enhanced analysis.


Author: Ed Moya

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Economics

Commodities and Cryptos: Oil rallies, Gold holds onto gains post NFP, Bitcoin hovers

Oil Crude prices extended gains after a mixed payroll report showed the labor market recovery is moderating but still headed in the right direction. …

Oil

Crude prices extended gains after a mixed payroll report showed the labor market recovery is moderating but still headed in the right direction.  The Omicron variant continues to be the key to short-term crude demand outlook and the latest updates have been mixed.  A South African study showed that Omicron reinfection risk is 3X higher.  The study of 2.8 million positive COVID samples in South Africa showed the Omicron mutation has a substantial ability to evade immunity from prior infection.  As Omicron spreads across the US, energy traders can’t forget about Delta as hospital admissions are increasing across 39 states. 

The aftermath of the OPEC+ meeting on output has many traders believe that if Omicron poses a bigger risk to the short-term crude demand, that would be met with a quick response of production cuts.  

Gold

Gold prices initially popped after a big headline jobs miss lowered the chances that the Fed would double the taper speed at the December 15th FOMC meeting, which would also push back expectations for that first Fed rate hike.  After traders processed the entire employment report, they realized it was not as bad since the participation rate rose sharply with both black and Hispanic unemployment also improved significantly.

Gold is still near one-month lows as markets continue to anticipate two Fed rate hikes next year, which should keep the dollar in demand.  Even as the Fed seems poised to wrap up tapering around the start of the first quarter, traders are not confident on when real yields will turn positive and that should be a primary driver for gold to rally after Wall Street confidently fully prices in the first couple of Fed rate hikes.  Leading up to the December 15th FOMC decision, gold should consolidate between $1750 and $1800 as next week’s inflation report doesn’t come with an extremely hot inflation report that includes a reading of 7% or higher. 

Bitcoin

Bitcoin is in ‘no man’s land’ right now and that does not seem to be changing anytime soon.  The long-term bullish case remains intact but prices seem poised to consolidate between $52,000 and $60,000.






Author: Ed Moya

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