Peloton Interactive (NASDAQ:PTON) was a pandemic favorite. With gyms shut down and people stuck at home, they snapped up Peloton’s pricey internet-connected exercise bikes and treadmills. But in the spring, with gyms reopening and the outdoors beckoning, sales quickly dropped off. Then things got even worse for PTON stock.

It put up huge numbers in 2020, with an approximately 400% gain by year’s end. It had serious momentum. 2021 has been a series of long, steep drops punctuated by brief rallies. After its latest rally, PTON is trading for around $90 down about 40% so far for the year.

There are two ways you could look at this. An optimist would look at Peloton as a proven business that’s expanding its premium exercise equipment line to capture even more customers. More customers means not just more sales, but growing subscription revenue. The falling value of PTON stock is a temporary reaction — or overreaction — to temporary challenges. That makes picking up shares at such a steep discount a smart strategy.

I’m definitely not in this camp. I suspect Peloton shares have a lot farther to fall yet. Here’s why.

Gyms Are Open Again

The first, and most obvious, issue that Peloton has faced this year is the reopening of gyms after the pandemic. There’s also the fact that people look to the outdoors for exercise when the weather is good, but that doesn’t concern me. Peloton has dealt with that every year. However, much of the PTON stock growth through 2020 was based on big increases in sales as people shunned gyms. In its Q3 earnings, the company acknowledged the positive impact on its business:

“Over the past several weeks, our warehouse and delivery teams have delivered tens of thousands of Peloton Bikes to new Members across our markets, allowing us to help more people cope with the anxiety, uncertainty, and stress this pandemic has brought to our communities.” 

With sales growth no longer being inflated by the pandemic, a lot of the wind is out of PTON stock’s sails. 

Treadmill PR Disaster

After conquering the stationary bike market, Peloton was looking to treadmill sales to boost future revenue. That plan came crashing to the ground when the company was forced to recall its treadmills after a child was killed by one, and over 70 other people were injured in treadmill-related mishaps. The recall was costly and the company suffered a public relations nightmare.

Peloton then made a bad situation worse, by trying to force owners to pay a $39 monthly fee to use the treadmills they had paid over $4,000 to buy. This fee was not for a fitness coach or participation in online classes, it was literally to be able to turn on the treadmill and run on it. The company faced a huge backlash over social media for the move.

Going Downmarket

The next crisis for Peloton came with its decision to target less affluent consumers. The strategy makes sense — the company makes money over the long term by selling monthly memberships to equipment owners. However, when you read that a company is “slashing” prices, that raises questions about its health.

In addition, Peloton has gotten a lot of mileage out of being an exclusive brand. Dropping prices angered customers who had previously paid full price for bikes and treadmills, and offering cheaper equipment opens the gate to less affluent buyers.

Peloton compensated those who had paid full price for their bike up to 30 days before the latest price drop. However, the loss of exclusivity may be tougher to address. If well-heeled owners walk away, the brand loses some of its cachet and then it becomes a tougher sell — even with slashed prices. It might pay off, but going downmarket is a risky move.

Supply Chain Disruption Is the Icing On the Cake

Peloton is not immune to the global supply chain and logistics disruption. On the contrary, it is more exposed than many companies. Besides increasingly scarce chips required for its high-tech hardware, Peloton has to book space to ship its very bulky and heavy equipment from overseas factories.

The company has a backlog of orders it is struggling to fill. CNBC reported in August that Peloton has spent nearly $1 billion so far in 2021 in an effort to address the issues. This includes an undertaking to build its first U.S. factory, in Ohio. The supply chain misery shows no sign of going away, and it will take time for Peloton to ramp up domestic production. And then it will have additional operational costs.

Bottom Line on PTON Stock

It is entirely possible that Peloton comes out of all this as a stronger, growing company. However, I’m not convinced a recovery is coming any time soon. For now at least, I would avoid this Portfolio Grader “F” rated stock.

On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.

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