Where will Peloton stock be in five years?

Warren Buffett, a legendary investor with an outstanding investment track record. Berkshire Hathaway, emphasizes thinking about probability. Each possible outcome has varying degrees of certainty, which can help inform how investors allocate capital.

We can use this mental framework when looking at struggling fitness businesses. Peloton Interactive (PTON 5.35%). stock of this Consumer Discretionary Stocks It is currently 98% below its all-time high, which could entice some investors looking for potentially large returns if a successful turnaround occurs.

As we consider where Peloton will be five years from now, let’s look at two realistic outcomes that I believe will be possible.

what the bull wants

Despite ongoing sales declines and recent quarterly net losses of hundreds of millions of dollars, Peloton deserves praise for what it has accomplished since its founding in 2012. The company has leveraged technology, digital capabilities, and the Internet to build a successful connected fitness platform. It resonated with consumers. And the brand is well known in the industry.

Bulls want Peloton to continue to lean on these strengths to get back on track. That starts with finding ways to drive demand for the company’s exercise equipment and fitness apps.

chief executive Barry McCarthy is expanding Peloton’s horizons by expanding distribution and signing new content partnerships. And Peloton continues to focus on what it does best: creating engaging exercise content across a variety of fitness modalities.

As things start to improve, Peloton’s sales will likely grow. Add this to continued cost-cutting and an emphasis on financial discipline that wasn’t a priority during the pandemic, and you could have a profitable enterprise.

Peloton stock is trading at low prices. sale for price The ratio is less than 0.5. Even if the leadership team can begin to record small, consistent improvements, that valuation multiple should start to trend in the right direction. And five years from now, that stock could be a huge winner for investors.

What are the bears thinking?

Returning to Buffett’s focus on thinking in terms of probability, I view the odds of an optimistic outcome actually occurring as less than 10%. I think a bearish scenario is more likely with a lot going on against Peloton right now.

Arousing consumer interest was the company’s biggest challenge. Peloton’s expensive bikes and treadmills were selling like hotcakes a few years ago. When everyone was stuck at home with no other way to exercise, the products practically sold themselves.

I don’t know if there’s a sustainable demand these days for people to want to spend four-figure sums on things they probably won’t use very much. Add to this the uncertain economic environment and the possibility of a recession, and it is easy to become pessimistic.

Competition is another thing holding Peloton back. There are different equipment manufacturers and fitness apps on the market, and people can go to the gym at any time. Additionally, consumers can exercise with just their bodies wherever they are.

There is also a lot of free exercise content online. For Peloton to be successful in the long term, its user base needs to stick to their workout routines to keep them from unsubscribing. I’m not confident in making that kind of bet.

Buffett once said, “Transition rarely changes.” This means the struggle is likely to continue and there is no telling when the net loss will end.

I think this bearish outcome is very likely based on the facts before us. Therefore, investors are advised to avoid this stock until there is a major improvement in sustained growth and positive returns.