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1 Reason To Avoid Peloton

Over the last couple months, I’ve shown you stocks to avoid…

Stocks to consider buying…

And some of the best stocks related to the coming Internet of Things…  Which you can find linked further below.

All these recommendations are to help you either avoid pain and terrible stocks.  Or to help you find potentially great stocks to invest in during this pandemic.

Doing both of things together will help you earn higher than average investment returns and build your wealth.

There are few safe places to invest your capital today. And this number is growing smaller every day this crisis lasts.

The key to continue compounding your capital is to keep investing well over time… Combine this with dividends and you’re well on your way to building a retirement account you can live off.

And this is huge part of things.

But another huge part of this is also losing as little capital as possible.

The fewer investment losses you have the more capital you keep. And the more capital you keep the faster you can invest well to grow your wealth.

Both things are necessary to build wealth. But most only think of investing well. 

Today, I want to show you 1 Reason To Avoid Peloton so you can continue building your wealth safely.

1 Reason To Avoid Peloton

It’s Enormously Overvalued

Normally in these articles I talk about profitability, cash flow, the affects coronavirus is having on a company’s financials among other things.

But frankly none of those matter with Peloton (PTON) due to its huge valuation.

Peloton operates an interactive fitness platform where people can exercise with the help of real professional trainers virtually, from their home.

Due to the coronavirus and people locked at home, its seen a massive increase in sales, profitability, and share price this year.

Its revenue in the last 12 months is up to $1.8 billion from $218 million in 2017 when it IPO’d.

It just became profitable for the first time in a quarter on September 10th, 2020 when it released its most up to date quarterly financial info.

And its stock rose 181% from $29.74 per share on January 2nd, 2020 to $83.562 per share as of this writing.

This is all great for Peloton and its shareholders… But it also leads to a huge problem.

It’s massively overvalued.

Its current P/E is unreadable because Peloton’s never earned a full year net profit as a public company.

A P/E reading requires 1 year’s profit to measure not just one quarter like Peloton has.

Its current P/CF is 48.1.

And its current forward P/E is 416.7.

I look to buy companies with valuations below 20 on all these metrics to consider the company undervalued or at worst fairly valued…

Peloton crushes this threshold.

Why below 20?

Because that means the company is at worst fairly valued… And if its significantly under 20 that means the company is undervalued.

When a stock is fairly valued or undervalued it gives you more margin of safety in investing terms.

This also means you have a much higher probability of earning higher returns owning its stock over time.  These combined make the stock a less risky investment.

With Peloton stock being so overvalued it means there is no margin of safety… That you have a far lower likelihood of making money owning its stock over time.  And these make the stock riskier.

But why is it so overvalued?

Because it’s helping to revolutionize how we exercise.

People expect Peloton to continue transforming how we work out.

Because of this people are buying its shares a lot on the hopes of this.  And this is taking its share price far above where it should be based on its current profits.

Peloton will continue helping people all over the world exercise even after this pandemic is over.  And as a leader in this space it should benefit over time.

But exercise trends change rapidly, and I require as much of a margin of safety and room for error as possible when investing in stocks because bad stuff always happens at some point.

If you’re buying Peloton stock today there’s zero room for error due to its huge valuation.

For this reason of its huge valuation I recommend you stay far away from investing in Peloton stock.

Use the following links to some of our recent articles to learn other ways to protect yourself and your investments in these uncertain times. 

Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.

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