In many ways, beating up on exercise bike manufacturer Peloton (PTON) might appear an unseemly action. At a certain point, you want to avoid kicking a dead horse, even if it supposedly deserves it. One thing is clear: PTON stock suffered a severe fall from grace. Previously a pandemic darling as it facilitated health and wellness during the COVID-19 lockdowns, Peloton suffered severe relevancy issues as society emerged from the crisis.
For one thing, PTON stock succumbed to pressure from revenge travel or the intense desire to go out and take the vacations that were denied workers because of the draconian COVID mitigation protocols. Put another way, Peloton was on the wrong end of the pent-up demand cycle. Suddenly, as restrictions faded, the home was the last place people wanted to be.
Second, the return of social normalization also meant increased demand for gym memberships. Back during the worst of the pandemic, people inherently avoided public spaces due to the mysterious SARS-CoV-2 virus. Simply put, we just didn’t know what kind of threat it posed but because of the many scary reports circulating across various media channels, society naturally erred on the side of caution.
Not surprisingly, annual revenue peaked in the fiscal year ended June 2021. Since then, both in the income statement and in the price chart, PTON stock struggled mightily in investment market quicksand. However, with so much red ink printed, a possible case can be made that Peloton could be de-risked.
Interestingly, the Barchart Technical Opinion indicator rates PTON stock a 24% weak buy. Granted, that’s not an endorsement to write home about. However, it just might be the catalyst that slowly gets Peloton’s wheels in motion.
TikTok, Unusual Options Activity and PTON Stock
Given the nearly 25% loss of equity value over the past 52 weeks, Peloton stakeholders haven’t had much to get excited about. However, that narrative appeared to shift on Thursday. On that day, the exercise equipment manufacturer joined forces with social media platform TikTok for an exclusive new content partnership.
More specifically, writes Barchart content partner The Motley Fool, “Peloton and TikTok are launching a new dedicated, co-branded fitness hub on the China-based social media platform dubbed ‘#TikTokFitness Powered by Peloton.’ The hub will include custom Peloton content, including select live classes, original instructor series, creator patrnerships [sic], and celebrity collaborations.”
Notably, this deal represents “the first time Peloton will produce bespoke social content for a partner outside of Peloton-owned channels. With over 1 billion active users globally, it's not hard to see why Peloton has opted to partner with the short-form mobile video leader.”
Sure enough, sentiment began rising once the announcement was made. Also, on Friday, PTON stock closed the session almost 10% up from the prior day’s close. Unsurprisingly, PTON also made the list for unusual stock options volume.
On Dec. 5, total volume for PTON options came out to 230,734 contracts against an open interest reading of 719,772 contracts. Further, the percentage difference between the Friday session volume and the trailing one-month average metric landed at 454.33%. Breaking down the numbers, call volume hit 176,757 contracts versus put volume of 53,977.
On paper, the above pairing yielded a put/call volume ratio of 0.31. From a face-value reading, the narrative over PTON stock appears bullish. Again, on the surface, this metric implies more traders are engaging call options than they are puts, thus leading to the relatively deflated ratio.
What’s more significant, though, is who’s doing the trading. For that, we turn to options flow data, which shows significant volume (from big block trades) of bought and sold calls along with bought and sold puts. Because of the many transactions that occurred on Dec. 4 and Dec. 5, it’s difficult to extract much meaning.
Most importantly, these options were largely near-expiry derivatives. Essentially, traders sought to scalp a quick profit based on the TikTok disclosure. The unusual activity was interesting but it didn’t provide much insight.
Looking to the Fundamentals
That’s not to say that the partnership with the social media platform is useless. On the contrary, as I stated earlier, it could be the start of a possible recovery. It’s just that options activity itself appeared more of a reactionary development rather than an event signaling a strategic shift. Still, intrigued investors may turn to the fundamentals for a possible clue to Peloton’s trajectory.
A key source of skepticism over PTON stock is the general inability of consumers to keep their new year’s resolutions. Per Drive Research, just 9% of adults keep their resolutions all year long. Moreover, 80% of such promises for self-improvement are forgotten by mid-winter. Perhaps alarmingly, 23% of adults quit the first week of the year.
Back in 2009, an op-ed published by The New York Times stated that – to no surprise back then – that home exercise machines simply gather dust once the initial purchasing euphoria fades away. And that would seem to be the norm except that Peloton apparently enjoys an annual retention rate of over 92%.
Further, recent market research indicates that more Americans are working out at home, citing convenience as a key factor. That appears to be a dramatic paradigm shift from prior generations’ behavioral standards toward home exercise equipment.
Could it be that this newfound trend will continue to rise in 2024 and beyond? If it does, PTON stock just might be this year’s surprise winner.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
