Over the past two years, Peloton’s stock price has been on a wild ride. A beneficiary of the “stay-home” trade in the early months of the pandemic, the stock reached a record high of over $162 per share before careening downward.
In fact, after massively outperforming the SPDR S&P 500 ETF Trust (SPY), the stock is now underperforming over the trailing two years.
Several Steep Drops
The company has been plagued by bad news over much of the past year, causing several steep drops in price.
In May 2021, the company announced a recall of all treadmills after several injuries and one fatality were reported in connection with their products. This was a turnaround from its initial response refusing to recall their products in response to a request from the Consumer Product Safety Commission.
Shares plunged again in November after a weak earnings report, and the company slashed prices on its products to try and entice consumers who were returning to brick-and-mortar gyms.
More recently, the company has announced a new CEO as well as a round of layoffs in hopes that the company can be turned around. The stock price has risen nearly 50% since Feb. 4 on speculation that a takeover bid could be coming.
Effect on ETFs
Peloton’s inclusion in 95 different ETFs means that these wild swings in price are showing up in the performance of these funds.
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The stock is found in a range of thematic ETFs, with the Roundhill Meme ETF (MEME) having the largest allocation of any fund, at 3.7%. As the fund’s index selects stocks based on high social media activity score and high short interest percentage, this hints at how divisive and polarizing the future of this stock is.
The Roundhill Streaming Services and Technology ETF (SUBZ) also has one of the largest allocations to portfolios among ETFs, currently at 2.4% of the portfolio.
The ProShares On-Demand ETF (OND) is a similar ETF, providing exposure to a cap-weighted index of global companies that provide on-demand platforms and services to consumers. Peloton is a 3.0% weight in the portfolio.
Stock-Specific Or Symptomatic?
While Peloton stock is not a top holding in any of these ETFs, its rapid rise and fall from grace seems correlated to the path of the pandemic, and begs the question of whether similar companies might face the same struggles going forward.
In spring 2020, the company was a clear beneficiary of lockdowns and people choosing to work out from home. But vaccine availability and declining cases paired with pandemic fatigue are driving consumers to shift at least partially back to prior habits.
Thematic ETFs that were designed to capitalize on the stay-home shift in consumer habits have struggled relative to broader markets, suggesting Peloton’s stock faces more than company-specific head winds.
Time will tell whether these price movements are a sign that this “trend” is played out or is just a bump in the road.