1 shaky stock you shouldn't bet on in 2022

Connected fitness equipment company Peloton Interactive (PTON) reported lower sales and a larger loss for the fiscal fourth quarter. Additionally, the company asserted a weak sales outlook for the first quarter of fiscal 2023 as it expects to continue to battle weakening demand amid macroeconomic headwinds. Given PTON's price decline of more than 75% since the start of the year, we believe it is high time to avoid this fragile stock. Read on….

shutterstock.com - StockNews

With a market capitalization of $2.78 billion, Peloton Interactive, Inc. (PTON) operates an interactive fitness platform in North America and the international. The company offers various connected fitness products under the names Peloton Bike, Peloton Bike+ and Peloton Tread+. Plus, it offers connected fitness memberships and access to live and on-demand classes.

Home workout provider PTON has been a big winner from coronavirus. The company's home exercise equipment and subscription fitness classes have been in high demand during the pandemic. But after peaking in January 2021, the stock has seen a descent as consumer behavior returns to pre-pandemic norms as COVID-19 restrictions ease.

PTON has been hit hard by slowing consumer demand as people return to traditional gyms and workouts. The company reported lower sales, negative gross margin and higher operating losses for the fourth quarter of fiscal 2022. Its net loss and loss per share were $1.24 billion, respectively. and $3.68. This is the sixth consecutive quarter of losses for the company.

In addition, the number of PTON members has dropped. The company's internet-connected fitness subscription additions of 4,000 in the fourth quarter, compared to 250,000 additions in the year-ago quarter. Total platform workouts were 148.2 million, down 20% sequentially and 4% from the prior year period.

Furthermore, his average monthly workouts per connected fitness subscription dropped 21% sequentially and 26% year-over-year to 14.8.

The maker of connected fitness equipment is trying to cut costs through massive layoffs and strategic changes. For the first quarter of fiscal 2023 (ending September 30), the company expects subscriber numbers to remain stable and revenue to be between $625 million and $650 million, which which is below analysts' estimates.

The price of PTON is down 76.7% year-to-date and 91.1% over the past year to close the last trading session at $8.20. The stock is trading 91.8% below its 52-week high of $99.36, which it reached on October 26, 2021.

Here's what I think could influence PTON's performance in the coming months:

Deterioration of finances

PTON revenue decreased 27.5% year-over-year to $678.70 million for the fourth quarter ended June 30, 2022. The cost of revenue from business grew 3.8% from the previous year's value to $708.50 million. Its total operating expenses increased 110.7% year over year to $1.17 billion. Its adjusted EBITDA was $288.70 million, down 540.1% year-over-year.

Additionally, PTON's net loss widened 297.3% year-on-year to $1.24 billion, while its loss per share was $3.68, worsening by 250.5% year-on-year. Corporate cash outflow from operating activities and free cash outflow were $359.90 million and $411.90 million, respectively.

Dark growth prospects

Analysts expect PTON's revenue to decline 20.7% year-over-year to $638.95 million in the first quarter of FY2023 (ending September 2022). The consensus loss per share for the current quarter is expected to be $0.67. Additionally, the company has not met consensus revenue estimates in each of the past four quarters.

Furthermore, the consensus revenue estimate of $3.06 billion for fiscal year 2023 (ending June 2023) indicates a 14.6% decline from the prior year. Additionally, analysts expect the company's loss per share to be $2.21 for the current year.

Frothy Rating

In terms of EV/Forward Sales, PTON's 1.27x is 24.6% higher than the industry average of 1.02x. Likewise, its futures price/sales of 0.91x is 13.9% above the industry average of 0.80x. And the stock's 8.78x forward price/book is 279.3% above the industry average of 2.32x.

Low profitability

PTON's trailing 12-month gross profit margin of 19.49% is 46.3% below the industry average of 36.32%. Its trailing 12-month EBIT margin of negative 42.42% compares to the...