Peloton's (NASDAQ:PTON) Insiders Sold at Highs, Pay Attention if they Buy at the Lows
This article first appeared on Simply Wall St News .
With the 10% decline, Nasdaq is now officially in the correction territory. Yet, stocks like Peloton Interactive, Inc. ( NASDAQ: PTON ) have been the leaders of this decline by a wide margin, leading to its exclusion from the index.
The stock that took off as an 8-bagger in the Pandemic gave back all the gains, retracing over 80%. Yet, despite the negative sentiment, its balance sheet might be one of the bright points.
See our latest analysis for Peloton Interactive
Insiders Sold At the Highs
According to SEC filings , Peloton executives and insiders sold almost US$496m worth of the stock. The sales were all part of 10b5-1 plans, which are prescheduled. From today's standpoint, it seems like their timing was impeccable.
The leading seller was CEO John Foley, who unloaded US$119m worth of shares, starting as early as November 2020. The majority of his shares sold above US$110, a big difference between yesterday's closing price of US$31.84.
Other notable sellers include:
William Lynch (President): US$105m
Hisao Kushi (Co-founder & CLO): US$90m
Tom Cortese (CPO): US$60m
Mariana Garavaglia (COO): US$25m
However, not only Peloton engaged in this behavior, as insider sales at Nasdaq have been booming well before the overall index started showing cracks in its armor in the Autumn.
We can observe it from the following chart.
Meanwhile, the company is working with McKinsey & Co, reviewing the cost structure and possibly cutting jobs – which certainly doesn't lead to great employee morale. However, some institutions remain bullish, most notably JP Morgan which keeps an Overweight rating and a price target of US$50 for December 2022.
A Look Into Peloton's Balance Sheet
According to our data, Peloton Interactive had US$838.2m of debt, up from none a year ago. However, it does have US$924.2m in cash, offsetting this, leading to net cash of US$86.0m.
How Healthy Is Peloton Interactive's Balance Sheet?
According to the last reported balance sheet, Peloton Interactive had liabilities of US$1.30b due within 12 months and liabilities of US$1.60b due beyond 12 months.Offsetting these obligations, it had cash of US$924.2m as well as receivables valued at US$81.1m due within 12 months.So its liabilities outweigh the sum of its cash and (near-term) receivables by US$1.90b.
Of course, Peloton Interactive has a market capitalization of US$10.5b, so these liabilities are probably manageable.But there are sufficient liabilities that we would undoubtedly recommend shareholders continue to monitor the balance sheet from now on.
Despite its noteworthy liabilities, Peloton Interactive boasts net cash, so it's fair to say it does not have a heavy debt load! When analyzing debt levels, the balance sheet is the obvious place to start.But ultimately, the future profitability of the business will decide if Peloton Interactive can strengthen its balance sheet over time. So if you're focused on the future, you can check out this free report showing analyst profit forecasts .
In the last year, Peloton Interactive wasn't profitable at an EBIT level but managed to grow its revenue by 73%, to US$4.1b.With any luck, the company will grow its way to profitability; however, we doubt that will happen within the next 3 years.
So How Risky Is Peloton Interactive?
By their very nature, companies losing money are riskier than those with a long history of profitability.And the fact is that over the last twelve months, Peloton Interactive lost money at the earnings before interest and tax (EBIT) line.Indeed, in that time, it burnt through US$1.5b of cash and made a loss of US$634m.But the saving grace is the US$86.0m on the balance sheet.
Pre-profit companies are often risky, but they can also offer great rewards. Yet, in Peloton's case, we remain cautious because we still haven't seen signs of insider buying even at these very depressed price levels. Additionally, dilution remains a mild issue as the number of shares outstanding grew by 12.9% in the past year.
The balance sheet is the area to focus on when analyzing debt.But ultimately, every company can contain risks outside of the balance sheet. To that end, you should be aware of the 4 warning signs we've spotted with Peloton Interactive .
At the end of the day, it's often better to focus on companies free from net debt. You can access our free list of such companies (all with a track record of profit growth).
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com
Simply Wall St analyst Stjepan Kalinic and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
