Why Peloton (PTON) Shares Are Trading Lower Today
What Happened?
Shares of exercise equipment company Peloton (NASDAQ:PTON) fell 6.6% in the morning session after the major indices declined (Nasdaq down 1.8%, S&P 500 down 0.9%) amid rising geopolitical tensions in the Middle East. NBC News reported (citing White House and Defense Department officials) that the U.S. "has indications that Iran is preparing to imminently launch a ballistic missile attack against Israel."
Separately, Fed Chair Jerome Powell told investors there is no "preset course" regarding the pace of future rate cuts. He added in a speech delivered to the National Association for Business Economics, "Looking forward, if the economy evolves broadly as expected, policy will move over time toward a more neutral stance. But we are not on any preset course." While the markets could still be right about more rate cuts in the near term, Powell's comments added uncertainty to both the cadence and magnitude of cuts.
Following these updates, the VIX index (or fear gauge) spiked as the reports created more uncertainty, which investors certainly don't like.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Peloton? Access our full analysis report here, it’s free.
What The Market Is Telling Us
Peloton’s shares are extremely volatile and have had 60 moves greater than 5% over the last year. Peloton’s shares are very volatile and have had 60 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 12 days ago when the stock gained 7.9% as markets roared back after an initially muted response to the Fed's rate cut, which sparked a renewed appetite for risk assets. While investors were expecting a reduction in rates from the US central bank, there was a bit of back and forth on whether the cut would be 25bps (a quarter percent) or 50bps (half a percent). The Fed ended up slashing its policy rate by 50bps (0.5%) to 4.75%-5.00%.
This marked the first rate reduction in roughly four years. As a reminder, the Fed--under Chair Jerome Powell--began raising rates to tackle inflation coming out of the COVID-19 pandemic when a confluence of supply chain disruptions, labor shortages, and stimulus spending caused inflation to run hot.
Looking forward, the Fed signaled that more cuts are possible in 2024/25. Putting it all together, the announcement and outlook provided a breath of fresh air and a clearer view of the Fed's monetary policy stance, which the market has been waiting for with bated breath. If there's anything the market doesn't like, it's uncertainty.
As a reminder, the driver of a stock's value is the sum of its future cash flows discounted back to today. The result of lower interest rates, all else equal, is higher stock valuations. This is especially true for higher-growth stocks such as those in the technology sector, where the current value depends more on cash flows many years out in the future.
Peloton is down 24.7% since the beginning of the year, and at $4.38 per share, it is trading 34.9% below its 52-week high of $6.72 from January 2024. Investors who bought $1,000 worth of Peloton’s shares 5 years ago would now be looking at an investment worth $195.23.
When a company has more cash than it knows what to do with, buying back its own shares can make a lot of sense–as long as the price is right. Luckily, we’ve found one, a low-priced stock that is gushing free cash flow AND buying back shares. Click here to claim your Special Free Report on a fallen angel growth story that is already recovering from a setback.
