One of the greatest beneficiaries of the COVID-19 related disruptions have been home fitness equipment companies. Long term, the fitness market may be forever changing, but this firm’s first-mover advantage is over. Future revenue and profit growth are sure to slow as larger competitors move in for their piece of the pie. Fiduciaries should avoid this week’s Danger Zone pick: Peloton Interactive Inc. (PTON).

Since we first warned about the firm prior to its IPO in September 2019, the stock is up ~209% (including a ~216% gain year-to-date) while the S&P 500 is up just 11%. Investors who think that such extraordinary performance in the stock coincides with accelerating revenue growth, improved profitability, or growing competitive advantages over the long term are wrong. While Peloton’s stock performance is attractive to many momentum investors, investors with fiduciary responsibilities should consider the deteriorating fundamentals, weak competitive position, and the unrealistic profits implied by the current valuation.

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