When you start to see “shareholder action alert” legal notices popping up, you know it’s a bad sign. Apparently, some folks aren’t too pleased with fitness equipment maker Peloton (NASDAQ:PTON) lately. Among the most aggrieved are long-term holders of beaten-down PTON stock.

On multiple occasions, we tried to warn prospective bottom-fishers not to jump into the trade. We told you to walk away, warned you not to fall for the rallies and characterized Peloton’s comeback prospects as murky at best.

Frankly, being a hero could only get you a zero when it comes to PTON stock. Giving Peloton an “F” in my Portfolio Grader might sound harsh, but going into 2022, the cards are all stacked against the shareholders.

We’ll start with a breakdown of the stock’s price history, which has been dismal. If you still have heroic ambitions after that, stick around and we’ll dissect the ongoing problems that Peloton needs to overcome, but probably won’t.

PTON Stock at a Glance

After the hype phase comes the crash phase. This doesn’t happen with every stock, but it certainly applies to PTON stock.

Peloton’s investors did have their day in the sun – no doubt about that. From March through December 2020, the share price soared from $20 to $170, believe it or not.

Bear in mind, that was a time when the Covid-19 pandemic made home exercise equipment a red-hot item. That heat cooled off, however, as vaccines became widely available to the public.

Thus, the post-hype crash phase commenced in 2021 as PTON stock fell below $100 in April, and then $50 in November.

During the final trading sessions of 2021, the share price was all the way down to $35 and not showing any signs of life.

Momentum-focused traders should be horrified at this type of price action. However, value investors might be intrigued — but really, they shouldn’t be interested in Peloton at all.

A Public Relations Nightmare

It has already been challenging for Peloton Interactive to deal with the easing of Covid-19 lockdowns. Even beyond that, the company also had to go into damage-control mode in the face of horribly tragic incidents.

In February 2021, as reported by the U.S. Consumer Product Safety Commission, a three-year-old boy was trapped under a Peloton Tread Plus. It turned out, regrettably, that this child ended up having significant brain injury.

“He was found to have tread marks on his back matching the slats of the treadmill, neck injury, and petechiae on his face, presumably from occlusion of blood flow,” the report stated.

As if that weren’t awful enough, in March, a young child (different from the one discussed above) was killed in an accident involving a Tread Plus treadmill.

In response to this and to more than 70 reported incidents, Peloton initiated a recall of the company’s Peloton Tread+ treadmill, model number TR01.

From Bad to Worse

It’s likely that this public relations nightmare contributed to Peloton’s financial woes. During the fourth quarter of 2021, Peloton posted a staggering net earnings loss of $313.2 million. Worse yet, Peloton reported a net earnings loss of $376 million for the company’s fiscal first quarter. In other words, the company’s financial bottom line is only going from bad to worse.

If Wall Street analysts are concerned about Peloton’s inability to execute, can you really blame them?

For instance, Raymond James analyst Aaron Kessler leveraged online search data to model a less-than-stellar outlook for Peloton. “Based on our updated analysis, the search trends data indicates continued softening of demand for Peloton sales in the December quarter,” Kessler reported.

Meanwhile, analysts at UBS recently slashed their price target on PTON stock from $65 to $30. Understandably, the UBS analysts cited their concerns about Peloton’s weak subscription numbers.

The Takeaway

There are companies and stocks worth trying to save, and those that ought to be left alone. Clearly, Peloton belongs in the latter category.

As an informed investor, your role is to investigate and take a position in high-conviction businesses. In terms of finances and reputation, Peloton simply doesn’t pass muster.

So, don’t feel obligated or tempted to take a long position in PTON stock. There are plenty of other opportunities out there — and the vast majority of them are much more favorable than Peloton.

— Louis Navellier and the InvestorPlace Research Staff

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Source: Investor Place