Investors woke up to more volatility on Tuesday as U.S. regional bank fears were renewed. Just when market participants thought the worst of the bank failures were over, the regionals suffered another big drop in value. JPMorgan Chase & Co. (JPM, Financial) stepped up to the plate, buying First Republic Bank (FRC, Financial) in a $10.6 billion deal. Only time will tell if the banks are done rocking broader markets. In any case, value seekers may wish to go on the hunt for chances to buy the dip after the S&P 500's failure to hit that 4,200 level.
In this discussion, I will focus on a battered pandemic-era winner that has shed a majority of its value from peak to trough. Though it is hard to tell when ailing stocks have hit rock bottom, such names are worth consideration for deep-value investors seeking gains in some sort of turnaround.
Simply put, investors' patience (and confidence) will be put to the test if they are looking at some of the unloved stocks that have faded into the background. If they can delay gratification and keep hanging onto the securities they deem as severely undervalued, it may be worth looking to the many compnaies that have collapsed by over 60% or more.
From savior to forgotten: The rise and fall of a pandemic hero
One pandemic darling was fitness equipment maker Peloton Interactive Inc. (PTON, Financial). At the time of writing, its shares are down around 95% from their all-time highs. Indeed, the company used to be the talk of the town (think back to the early days of the pandemic).
Nowadays, Peloton seldom makes the headlines unless it is for bearish reasons. Indeed, it is easy to be negative when the recent performance in a stock leaves little room for hope. At this juncture, I think the non-stop negativity has gone on for far too long. Whether this indicates that there is considerable value to be had, though, remains the big question for deep-value seekers.
A stock that has crumbled as violently as the likes of a Peloton may take time to settle and pedal higher again, especially when the tables are turned against it.
Peloton: Forward-thinking fitness at a discount
It is hard to find anything to be positive about Peloton these days. Of course, the magnitude of the drop and the severely depressed valuation metrics alone may be enough for many to get behind the stock here. Without further due diligence, though, taking such a leap of faith may only bring forth further pain.
A 95% drop is nothing to overlook. There are serious fundamental issues that dragged the stock to such lows that would have seemed unfathomable back in the glory days of 2021. Now that people are heading back to gyms, the demand Peloton enjoyed in 2021 just is not there anymore. It has been a painful wake-up call for Peloton. The company has since suffered huge layoffs and other cost cuts. Despite the budget cuts, it has continued to move forward with various new products it hopes can turn the tides.
With a recession a possibility for this year, a new stationary bike, treadmill or anything in-between will be tougher to justify with limited funds. At least Peloton has its "sticky" subscribers, right?
Last month, Morgan Stanley (MS, Financial) warned of notable web traffic deceleration for Peloton. For the fiscal third quarter, its traffic pulled the brakes to a 27% decline. That is certainly not encouraging. Regardless, it is hard not to believe the worst has already been priced into the stock.
While it is clear the power of the Peloton brand may have been overestimated a few years ago, I do think the company is more than just a relic of the pandemic lockdown days. It will not be easy for the at-home fitness giant to turn the tides. That said, expectations are incredibly modest. Of course, expectations could always be lowered as the company continues bleeding cash. But at this juncture, I do think Peloton can start putting together a few quarterly beats.
The company missed earnings for seven straight quarters. A tough streak, but one that may be closer to ending as the company looks to benefit from prior cost reductions.
Final thoughts
Peloton stock is tough to buy on the dip. Some way or another, shares have found a way to move lower over the past two or so years. Acquisition rumors have been silent lately, but they could pick up again, especially if the company can prove that its subscriber base can hold its own once the worst of the recession storm hits.
The company's third-quarter 2023 earnings results are due on May 4. Investors will gain a glimpse of how Peloton is doing as it continues to batten down the hatches for what could be the last barrage of headwinds. For now, Peloton's more of a name to watch. If it can show some progress on the margin front, it may be worth a second look.
