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Analysts vs. Shorts: Who’s Right About Peloton Stock?

Last Updated September 23, 2020 1:32 PM
Thomas Niel
Last Updated September 23, 2020 1:32 PM
  • The analyst community touts upside for Peloton stock. Yet, 80% of Peloton’s float is sold short.
  • IPO Lockup expires Mar. 24, which could lead to en-masse sell-off like the one we saw in Beyond Meat last October.
  • In the meantime, a short-squeeze could happen when Peloton announces earnings Feb. 5.

Post-IPO, shares of Peloton Interactive (NASDAQ:PTON) have barely moved. The fitness technology company’s September 2019 offering priced shares at $29 . As CCN.com reported, shares dropped on their first day of trading.

Peloton stock has since rebounded, but just barely:

Peloton shares are barely up from their $29/share IPO price. | Source: Yahoo! Finance 

As of the close Jan. 29, Peloton stock traded for $31.50/share. Considering recent market performance, they aren’t exactly setting the world on fire.

Compare this to hot IPOs like Beyond Meat (NASDAQ:BYND). Beyond Meat priced its IPO at $25/share . Today, the stock trades above $120 per share.

When it comes to future price movements, it’s a battle between bullish analysts and bearish short-sellers. The analyst community remains positive on Peloton’s prospects. But short-sellers? Not so much. Eighty percent of Peloton’s float remains sold short .

Who’s right and who’s wrong? Let’s take a look at upcoming catalysts and see what the future holds for Peloton stock.

Analysts Could Be Right, but Heavy Selling Is on the Horizon

Recently, Wall Street analysts have talked up Peloton stock’s bullish potential. Bank of America analyst Justin Post believes Peloton faces less competitive risks than assumed . In his view, Peloton has “far exceeded” its rivals in terms of monthly downloads. Peloton’s move to build a lower-priced treadmill is another positive for the stock.

Baird’s Jonathan Komp is another analyst touting Peloton’s upside potential. Komp projects strong holiday sales  will translate into positive results for the company’s upcoming earnings report.

What about the company’s upcoming Mar. 24 IPO lockup expiration ? At that time, pre-IPO investors can start unloading their shares. In other words, there’s downside risk for Peloton stock. Komp takes an alternative opinion. He sees shares already pricing in the IPO lockup risks.

Yet, there’s reason to fear downside post-IPO lockup. Investors in the company’s past venture capital funding rounds are sitting on massive gains . If they cash in en-masse, shares could take a big tumble.

Look what happened after the Beyond Meat IPO lockup expiration:

BYND stock chart (Sep 2019-Dec 2019)
BYND stock performance from September through December 2019. | Source: Yahoo! Finance 

Shares tumbled more than 50%, as insiders cashed their chips. Beyond Meat has rebounded tremendously so far in 2020 . But short-term, insider-driven selling pressure could impact Peloton stock.

In the Meantime, a Short-Squeeze Could Happen Post-Earnings

With prominent short-sellers like Citron Research making bearish calls, it’s no surprise Peloton remains a popular stock to short:

Peloton tweet, December
Source: Twitter 

But with so many short-sellers crowded in this play, collectively, they leave themselves exposed to a short-squeeze.

So far, this has not happened. But, with the company’s earnings release set for Feb. 5 , it could occur if results exceed expectations. Take a look at what happened with heavily-shorted Rite Aid (NYSE:RAD) stock back in December. Shares more than doubled after beating earnings estimates .

However, this is a possibility, not a prediction. It’s tough to handicap how earnings results will turn out. But keep this in mind when assessing Peloton shares.

Sleepy Peloton Stock Could Start Seeing Big Price Moves

Peloton stock may be treading water now but in the coming months, shares could see big moves, upward or downward.

If Peloton beats on earnings next week, shares could skyrocket on a short-squeeze. Conversely, Peloton could head lower come March, as the IPO expiration period ends.

Bottom line: the analyst community may be confident in Peloton’s prospects. But with volatile factors at play, Peloton stock may mean a roller coaster ride for investors.

Disclaimer: The above should not be considered trading advice from CCN.com. As of this writing, Thomas Niel did not hold a position in any of the securities mentioned in this article.