Should you buy or sell Peloton shares as Cathie Wood trims stake?

By: Motiur Rahman
Motiur Rahman
Md Motiur enjoys researching how companies are solving challenges the world will face over the coming decades. In his… read more.
on Oct 28, 2021
  • Cathie Wood’s ARK Invest sold 448,621 shares in Peloton Interactive on Wednesday.
  • The firm now holds 1.7 million shares of Peloton valued at about $153 million as of this writing.
  • Peloton stock edged slightly high on Thursday despite ARK’s recent activity.

On Thursday, Peloton Interactive Inc. (NASDAQ:PTON) shares edged higher 1% despite the news Cathie Wood’s ARK Invest reduced its stake in the exercise equipment provider. ARK sold 448,621 shares, trimming its holding to 1.7 million shares valued at about $153 million as of this writing.

Analysts have lowered Peloton’s FQ3 earnings forecast in each of the previous three updates, ahead of the announcement on 4th November. The PTON stock has plunged by more than 38% this year, creating an attractive henry opportunity for bargain hunters. 

Is Peloton too risky to buy?

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From an investment perspective, Peloton shares trade at a reasonable P/S ratio of about 6.68. However, analysts expect its earnings to decline by 98.50% this year before bouncing back by 79.40 next year.

Therefore, although the stock trades at a reasonable sales multiple, its bottom line, which has failed to break even in the trailing 12-month period, is about to worsen.

As a result, it may be best to monitor the company’s performances in the coming quarters before betting on next year’s bottom line recovery.

Source – TradingView

Technically, Peloton Interactive shares seem to be trading within a descending channel formation in the intraday chart. In addition, the stock appears to have recently pulled back after finding the trendline resistance. 

However, although the stock has moved further below the 100-day moving average, it is still far from reaching overbought conditions.

Therefore, investors could target extended declines at about $80.62, or lower at $65.64. On the other hand, $98.10 and $113.91 are crucial resistance levels.

It may not be too late to sell

In summary, although Peloton shares have plummeted more than 38% this year, it seems the situation could get worse before getting better. 

Therefore, although its sale multiple is reasonable from a valuation perspective, the current downward pressure could push the price lower ahead of the expected earnings decline.

Therefore, it may not be too late to take some PTON profits.

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