StockBeat - Peloton Backpedals Sharply as Short Seller Says Shares Worth $5

Investing.com - Peloton Interactive (NASDAQ:PTON) shares slumped on Tuesday after famed-short seller Citron Research warned that the exercise-equipment maker's shares could slide by more 80%.

Its current valuation has been running too hot at a time when the competition is starting to catch up, the firm said.

"Peloton (NASDAQ:PTON) at $10 billion or even $5 billion makes zero sense," Citron Research said, estimating its value at about $1.3 billion, or $5 a share. Peoeton fell as much as 9%, prompting some bargain hunting that trimmed the loss to about 6% by 2:30 PM ET (19:30 GMT).

In the good days, when the competition was low, Peloton (NASDAQ:PTON) used its first-mover advantage to scoop up the high-income, low-hanging fruit. But with competition heating up over recent years, and a lack of innovation from the company, its glory days of hardware sales are in the rearview mirror, Citron Research said.

"While Peloton (NASDAQ:PTON) has enjoyed a first-mover advantage, the lack of differentiation of its bike has finally caught up to it as the competition is not only making virtually identical exercise bikes but ones that are both more affordable and functional," the firm added.

In another blow to Peloton, its competitors have been able to expand their digitally integrated at home fitness hardware offerings to new segments like mirror, tonal, boxing and rowing.

Competitors include privately held Echelon Fitness and Flywheel Sports.

Peloton efforts to expand its offering have done little to inspire confidence; its treadmill product fell short of expectations. Importantly, the company has missed the mass movement to mirrored interactive home gyms and digital weights.

Citron sees a wave of red coming in the not-too-distant future and warned that the upcoming lockup expiratjon in March will see an additional 240 million shares become available for sale.

Peloton went public at $29 on Sept. 27 and moved to as high as $37.02 on Dec. 2. The decline since the peak is now 12%.

The issue for some investors has been that it continues to lose money despite rapid sales growth. It lost $50 million in the quarter ended Sept. 30 even as revenue more than doubled to $228 million.

That makes the stock attractive to short sellers like Citron Research, who are betting they can borrow shares, sell them short and profit by buying them back at a lower price.