today is Jan 20, 2022

There are some big concerns right now.

Shares of connected-fitness company Peloton Interactive (NASDAQ:PTON) are down more than 70% from their all-time high, as of this writing.

When this video from Motley Fool Backstage Pass was recorded on Nov. 29, it was already down about as much as it is now. For this particular episode, Motley Fool contributors Jason Hall, Jon Quast, and Matt Frankel ranked nine stocks to buy that are down at least 30%.

Watch to find out why and whether there's still reason for long-term optimism when it comes to this fitness stock.

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Jason Hall: I was looking through some Peloton slides over the past couple of quarters just to get an idea of everything that's happened just to make sure I'm on the right track here about the trajectory of the stock and what's happened, and what I wanted to do is I'm going to share a screen.

Peloton's business is selling equipment, fitness equipment, and then signing people up for their services which is the live exercise that you can do with the trainer, all of the content library of programs they have and it's mostly built around the Peloton bike. But Peloton also has their treadmills. There was a big issue with the recall on those, but that's still part of their broader strategy. A company bought Precor so they getting into more of their commercial of equipment that was somewhat abide manufacturing capacity, but it's also getting them into that market. They've just introduced another product that's their hand weights that are an interactive AI. They actually you're touting AI as part of the feature set for this. But again, it's all about getting people to subscribe to their service, because at the end of the day, that's the thing that's going to make this a really profitable company over the next 10 years.

I want to show the fourth quarter just real quickly. The fourth quarter, its fiscal fourth quarter compared to its fiscal first quarter. Here is where I think this was back in August, reported a 54% revenue growth. Then first fiscal quarter that was reported more recently, 6% revenue growth. When your revenue growth goes from 54% to 6%. Another stock we're going to talk about Zoom later, same thing. When you have a really high rate of growth and it falls, that's the concern.

Now, I want to show one other data point before I move on here, I'm going to go back to that fourth quarter. Fitness subscriptions grew 114% to 2.33 million in the fourth quarter, and paid digital subscriptions grew a 176% over 874,000. Let's go back to the first quarter of fiscal 2022 again. 2.49 Million up from 2.33 million and 887,000 up from 874,000. I wanted to point that out because it shows sequential growth in users and that's a really important metric. If you're invested in this company, are interested in this company, is following its sequential growth in users, because that tells you how much it's continuing to attract new people onto its platform. Guys?

Jon Quast: Yeah, Jason, I want to jump in here and a lot of Motley Fool members I think know that I really do love Peloton's business. I'm a shareholder and there's so much to like about.

Hall: Yeah you talked to me into buying Jon.

Quast: I talked to you in the buying it on Upgrade or Top Grade, and this is something that I really do believe in for the long term and like you just pointed out, there is still some positive data points here in the sequential user growth. That is very important for the long-term growth trajectory.

Of us three, I ranked this the highest, I'm the one who ranked it six. Why did I rank it so low though if I do love it so much? And one of those things, is this a very young company. A very young and inexperienced management team as well. I believe that they shipped their first bike in 2017, if I'm not mistaken. You're looking in the grand scheme of things, a very young company, one of the things that they said in the most recent quarter was that they grossly misjudged what their demand was going to be for the quarter. That to me was a big warning flag because they are rapidly building out that manufacturing capabilities right now. You can't be misjudging what your demand is going to be when you're spending so aggressively to build out the manufacturing, that really needs to be something that you're fine tuning. To me that's a little bit of a warning sign. It doesn't break the thesis. It is a concern.

Like I said, there's other points of the thesis that are still intact, like the ongoing user acquisition, may have a very big goal of 100 million subscribers someday so they're still making progress toward that, even getting halfway there, this is a multi-bagger, I think. A lot of still like with Peloton, but there are some current concerns that would make me hesitant to put new money toward it today even with the discount.

Matt Frankel: With all these pandemic plays the biggest question I always ask myself is, did the pandemic accelerate a transition that was bound to happen anyway? A good example I gave with that as DocuSign. DocuSign is something that makes a terrible process easier regardless of whether or not there's a pandemic going on. That's a company that has real stickiness but was a stay at home stock. With a company like Peloton? I have to ask myself, how long will this last?

I don't know that you guys I know you're shareholders. I think I'm the only one of the three who is a Peloton customer and that there's a Bike in my house. Myself and everyone I know around me that has Peloton Bikes. They're not getting used nearly as much as they were during the height of the pandemic, the product's just not being used. We still use it a few times a week. It's not exactly a coat rack, but we're not using it nearly as much in just user engagement is dropping faster than I think people thought it would. Which is why the stock is down as much as it is. There's a lot of fears about how sticky this business is going to be. For me, out of the pandemic plays. You'll notice I rank the pandemic place, the stay-at-home stocks toward the bottom of my list. Stocks like Zoom stock like Teladoc. Out of all of them, I think Peloton is the least sticky, in terms of there's an alternative that a lot of people like better unlike a lot of the other ones. A lot of people don't like going to the doctor's office. A lot of people don't like having to fly somewhere to go to a meeting. But a lot of people like going to the gym. I think out of the stay-at-home stock it's the least sticky and that's just my take on it.

Hall: Yeah, I think that's fair. I think to me the biggest things that I'm not sure where the value it. The market side and the market's cut the value by half. The market doesn't know what to value it and I think that's a real potential risk.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Jason Hall owns Peloton Interactive, Teladoc Health, and Zoom Video Communications. Jon Quast owns DocuSign, Peloton Interactive, and Zoom Video Communications. Matthew Frankel, CFP® has no position in any of the stocks mentioned. The Motley Fool owns and recommends DocuSign, Peloton Interactive, Teladoc Health, and Zoom Video Communications. The Motley Fool has a disclosure policy.