Peloton Could Offer A Low Risk Buying Opportunity

Fitness centers around the world are shutting down at a rapid pace, unable to pay the rent due to COVID-19 restrictions. Investors have taken note, bidding up online fitness provider Peloton Interactive Inc. (PTON) nearly eight-fold since the March low. The latest rally wave posted an all-time high near 140 and reversed last week, setting the stage for a pullback that could offer a low risk buying opportunity.

Peloton Pullback Trading Strategy

As it turns out, the company reports fiscal Q1 2021earnings on Nov. 3, with analysts expecting a profit of $0.15 per-share on $732.15 million in revenue. The stock sold off for two days in September despite beating Q4 estimates and then turned sharply higher, rewarding pullback buyers. A similar trade set-up could unfold this time around because the report is likely to attract another crowd of weak hands who need to be shaken out.

KeyBanc Capital Markets analyst Edward Yruma raised their Peloton target from $120 to $160 on Wednesday, commenting “We think investor attention will focus on companies leveraged to a post-COVID-19 reopening but PTON will remain a beneficiary due to the contraction in the traditional fitness space. Our Key First Look Data points to<60% retention for many leading fitness chains, which will further exacerbate closures. Demand (new and Bike+ upgrades) remains very strong and marketing leverage could be greater than previously forecast.”

Wall Street And Technical Outlook

Wall Street consensus is highly bullish, with a “Strong Buy’ rating based upon 21 ‘Buy’ and 2 ‘Hold’ recommendations. One analyst recommends that shareholders close positions and move to the sidelines at this time. Price targets currently range from a low of just $33 to a Street-high $160 while the stock is now trading about $7 above the median $121 target. However, it’s dropped more than $10 since last week and could hit the median target before the earnings date.

Peloton is losing momentum and has now completed a head and shoulders pattern on the 60-minute chart. Accumulation readings are rolling over at the same time, indicating that caution is growing ahead of the quarterly confessional. Daily relative strength readings could be at or near oversold levels by that time, supporting the post-report pullback strategy. Just keep in mind that earnings will be reported on the afternoon of Election Day, adding a measure of volatility.

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