- Peloton shares pulled back 5% on Wednesday after a downgrade to neutral from Wedbush.
- The company is facing headwinds from gym reopenings and further competition from at-home fitness companies.
- The 12-month price target was cut to $130 from $115.
- See more stories on Insider's business page.
Peloton shares fell Wednesday following a ratings downgrade to neutral at Wedbush, which sees the company facing slower demand as more options for exercise become available with the economy reopening.
Shares of Peloton lost as much as 5.4%, hitting $113.33 before paring the decline to 4.4%.
The rating was dropped from outperform and a 12-month price target was lowered to $115 from $130, implying a potential decline of more than 11% in Peloton's share price.
The high-end fitness equipment and services company is heading into the next leg of its growth story and it will need to stoke business through savvy marketing and by offering compelling new products to combat competition from other companies, said Wedbush in a Wednesday note.
After the peak of the coronavirus pandemic, gyms are reopening and people have more choices in how to exercise outside of their homes including free options such as running.
"During this transition, we think a neutral rating makes sense until (1) we have better visibility on where underlying demand growth will shake out in the post-pandemic environment and (2) we have better visibility on what investors will be willing to pay for this growth," said James Hardiman, a Wedbush analyst covering the leisure sector.
The stock year-to-date has dropped about 24% but remains higher by 81% over the past 12 months. Peloton's business has grown during the COVID-19 pandemic as mass lockdowns forced millions of people to work and exercise at home.
Wedbush has been tracking customer engagement data from social media platforms, Google trends, and Peloton's own metrics, and in the June quarter, year-over-year growth has substantially decelerated, it said.
That "should not be surprising given seasonal and reopening headwinds, but nonetheless would seem to mark a turning point for a company that has continually defied gravity since its IPO, and presents evidence that the law of large numbers is finally catching up," said Hardiman.
Peloton in late June said it would offer discounted products and services through a new corporate wellness program, an announcement that propelled the stock to build on gains following a Bloomberg report that the company was pushing into the wearables market.