Should Investors Buy Peloton Stock After Its 96% Decline? Here's the Good News and the Bad News.

Peloton Interactive (NASDAQ: PTON) makes stationary exercise bikes, treadmills, and rowing machines, which it primarily sells to consumers for at-home use. Its stock went public in September 2019 priced at $29, but by the end of 2020, it had soared to a peak of $163. The COVID-19 pandemic sparked a surge in demand for the company's equipment, as lockdowns and social restrictions limited the use of gyms and other training facilities.

But when social conditions started to normalize in 2022, demand for Peloton's hardware plummeted. The company was faced with shrinking revenue and growing losses, which at one point threatened its very survival.

Peloton continues to struggle with weak sales, but the company's bottom line is now in much better shape thanks to a series of drastic cost cuts. With its stock trading 96% below its 2020 high, could this be a good time for investors to buy?

Image source: Peloton Interactive.

Here's the bad news

Peloton's business has undergone a significant transformation over the last few years. In fiscal 2021 (ended June 30, 2021), exercise equipment sales were the largest contributor to the company's $4 billion in total revenue. But through the first three quarters of fiscal 2026 (ended March 31), equipment sales represented less than one-third of its revenue base.

That's mostly because demand for Peloton's products collapsed after the peak of the pandemic, but it also reflects a shift toward digital subscription services. The company offers a connected fitness subscription for customers who own its exercise equipment, which gives them access to virtual classes and real-time performance tracking. The company also offers a separate subscription to its mobile app for customers who don't own its equipment, which provides them with workout plans and other basic features.

These subscriptions now account for the bulk of Peloton's revenue. On the plus side, they have high profit margins, but they aren't very sticky, so it's tough to keep members around. In fact, during the third quarter, Peloton's connected fitness subscriber base shrank 8% year over year to 2.66 million members, and its paid app subscriber base declined by 9% to 522,000 members.

In other words, not only is Peloton struggling to sell equipment, but it's also having trouble sustaining its membership base.

As a result, the company's total revenue has declined in every single year since fiscal 2021, and it's on track to decline again during fiscal 2026, according to management's guidance.

Data source: Peloton Interactive.

On to the good news

Peloton's management team appeared to be caught off guard when revenue started shrinking in fiscal 2022, because they had positioned the company's costs as if more growth was coming. Therefore, with less money coming in and more money going out, Peloton suffered a staggering net loss of $2.8 billion that year. If management didn't act fast to slash costs, the company probably wouldn't have survived.

Peloton is now spending less on everything from marketing to research and development. During the first nine months of fiscal 2026, the company's total operating expenses were just $862 million -- down sharply from $2.2 billion in the first nine months of fiscal 2022. As a result, it has eked out a small generally accepted accounting principles (GAAP) profit of $1.6 million in fiscal 2026 to date, so bankruptcy is no longer a real risk in the near term.

But there is a catch. By constantly cutting costs, Peloton is investing less in developing new products and acquiring new customers, making it harder to generate revenue growth. The company will eventually run out of ways to reduce expenses, so if it doesn't find a way to generate an organic increase in equipment and subscription sales, it will inevitably start making losses again.

Is it time to buy Peloton stock?

Peloton is trying to boost sales in a few different ways. It now sells equipment through third-party retailers like Amazon, Dick's Sporting Goods, and even Costco. And during the recent third quarter, it launched commercial versions of its flagship treadmill and exercise bike to sell to gyms and other training facilities. The shift into business-to-business sales will certainly expand the company's addressable market.

Peloton has $1.1 billion in cash on hand, so it has some headroom to experiment with different strategies, especially now that it's generating GAAP profits. But the company is also carrying $944 million in long-term debt, so it has a very limited window of opportunity to produce results.

Wall Street isn't convinced sales growth is on the horizon because analysts are forecasting flat revenue in fiscal 2027. Peloton has already had five years to prove it can turn its dwindling sales around without success, so it probably isn't wise for investors to bet on a different outcome right now.

A beaten-down stock isn't always a cheap stock, so I don't think Peloton's 96% decline represents a buying opportunity.

Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Costco Wholesale, and Peloton Interactive. The Motley Fool has a disclosure policy.