Shares of Peloton (PTON) slipped 5.3% in Tuesday’s premarket after Deutsche Bank analysts slashed the price target on the stock and downgraded it from ‘Buy’ to ‘Hold.’ Based on specific metrics, strategists think Peloton is overvalued compared to its peers.

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Deutsche Bank Cuts Peloton’s Rating and Price Target Due to “Lack of Clarity” on Growth Outlook

Analysts at Deutsche Bank cut the rating on Peloton’s stock from ‘Buy’ to ‘Hold’ on Tuesday and trimmed the price target from $13 to $4 per share. The move sent the company’s shares tumbling over 5% in the premarket trading. 

The main reason behind the downgrade is the “lack of clarity” in Peloton’s growth outlook. Analysts led by Lee Horowitz said they remain bullish on Peloton having a significant total addressable market (TAM) ahead of it that can “support accelerative growth,” especially when it comes to incremental growth drivers from its commercial business, new hardware, and partnerships, among other things. 

However, “the confidence in underwriting the success of these growth drivers in the medium term is challenging,” analysts said in the note. That said, the company’s valuation on a growth-adjusted Enterprise Value Gross Profit (EV/GP) multiple basis should be closer to its peers, hence the downgrade.

Since hitting more than $9.7 in July, the stock embarked on a steep downward trajectory, with its share price plummeting to as low as $4.3 in late October. The stock somewhat recovered in the last week, even though its latest quarterly report published on November 2 missed expectations.

Why is Peloton Struggling This Year?

Peloton’s disappointing stock market performance in 2023 is mainly due to a series of disappointing earnings results and a significant recall of more than two million of its bikes due to an issue related to its adjustable seat. 

The stock plummeted around 20% in August after the company’s fiscal Q4 2023 report revealed that the recall’s price tag significantly exceeded the exercise equipment maker’s expectations. Notably, it cost Peloton roughly $40 million, and around 20,000 members paused their monthly subscriptions because they were waiting for a replacement seat post.

In the most recent report, Peloton revealed a wider-than-expected loss per share and voiced concerns that inflation-weary consumers will pull back on spending, prompting the company to offer a weak holiday quarter guidance. It expects revenue between $715 million and $750 million in the holiday quarter, representing an 8% drop at the midpoint compared to the year-ago period.  

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