Hey PTON Stock Investors, Here’s What You Should Be Making of the Latest Move by David Einhorn

As one of the most important investors of our time, David Einhorn is a legend on Wall Street that many investors pay close attention to, and for good reason. I'm one such investor who follows the 13-F filings of Einhorn's DME Capital Management, and when there's a big move, I want to dive in. In addition to adding stakes in Warner Bros. Discovery (WBD), PayPal (PYPL) and Fortune Brands (FBIN) during the second quarter, Einhorn completely exited his position in Peloton (PTON) in Q2.

Let's dive into what may be behind this move, and what investors should make of Peloton moving forward.

Why Did Einhorn Rotate Out of Peloton Stock?

I think it's particularly fascinating to dive into the moves that big billionaire money managers make on a quarterly basis. One of the key reasons I do so is to watch how capital is flowing from some parts of the economy to others. Indeed, when Einhorn makes a clear rotation toward fintech and entertainment away from retail and fitness, that says a lot about his views on the broader economy and where these particular sectors and industries may be headed.

We're all looking for a so-called "canary in the coal mine,” and these moves often shed some light on the unique ideas behind smart investors' decisions. Peloton is a company that has been volatile of late — though not like its post-pandemic volatility — so there's likely a fundamental call driving at least part of Einhorn's exit.

Looking at Peloton's fundamentals, it's clear that deteriorating earnings in previous quarters have led to some volatility in PTON stock, and higher multiples overall. While Peloton stock trades at what may look like a reasonable forward multiple to me — currently at 19.3 times — the trailing price-to-earnings (P/E) ratio of 44.8 times points to it being a stock Einhorn believes isn't as cheap as many make it out to be. That's fair, and even more fair for investors who don't view the company's earnings growth prospects as robust.

Given there's such a discrepancy between its trailing and forward multiples, there's plenty of growth being baked into PTON stock at the moment. But considering the price tags associated with Peloton's bikes, treadmills, rowing machines and other hardware, if sales growth does slow down considerably, it's unclear whether the subscription model many investors have come to love may save the day in this case. Additionally, I believe it's worth keeping an eye on Peloton's debt and net cash position.

Overall, this stock appears to have too many red flags for Einhorn right now, who is selling at a time when shares have a bunch of negative momentum behind them. 

What Do Analysts Think of Peloton Stock?

Wall Street analysts have an average price target of $8.25 per share for PTON stock, which does imply some reasonable potential upside from current levels. That said, with the low price target below where the stock currently trades and downgrades becoming more common for Peloton investors, this name has clearly become harder and harder for many to hold.

In my view, I don't believe Peloton stock will likely turn the corner — unless and until we see more robust broader economic data suggesting the middle class has margin to be able to afford Peloton's premium-priced products and services. For now, my previously bullish stance is turning bearish, in part due to the work that Einhorn, other money managers, and analysts are putting forward on the company.