Shares of the New York-based digital-exercise equipment maker have gained more than 12 percent this week even as the coronavirus spread in Europe, South Korea and Iran.
On Wednesday, the Food and Drug Administration warned the virus is on a path toward becoming a pandemic and more new cases were reported outside of China than inside the country. The outbreak, which originated in Wuhan, China, has sickened more than 80,000 people worldwide and killed 2,700.
“With new COVID-19 hotspots in South Korea, Italy and Iran, we believe certain U.S. consumers will be less comfortable over time going to their gym and more likely to order a Peloton bike to stay home,” Laura Martin, an analyst at the investment bank Needham & Company, wrote in a note sent to clients on Thursday. “This may drive higher unit sales and subscription revenue in 2020 than are currently in our estimates.”
While Peloton may benefit from a prolonged outbreak, shares are still down more than 7 percent since Jan. 20, the day the coronavirus was first reported to have spread outside of China.
Another possible explanation for Peloton’s recent gains is the expiration of its initial public offering lock-up period.
On Monday, about 90 percent of Peloton’s shares outstanding became available for trading as insiders and early investors were able to sell for the first time since the September IPO. The lockup period ended sooner than normal because the standard expiration would have occurred during an earnings blackout period, according to a Securities and Exchange Commission filing.
Since shares rallied on Monday, the expiration “should be perceived as less of a ceiling on Peloton's share price upside,” Martin said. She has a “buy” rating and a $40 price target on the stock.
Peloton shares fell 4.5 percent this year through Tuesday, worse than a 3.2 percent decline on the S&P 500.