Peloton Leads The Market’s Parade Of Losers

Part of Peloton Interactive

PTON
stock decline this year was funny. But the loss of 72% for the year to date (through November 18) was not so humorous. As shown in the table below, Peloton suffered the biggest loss of all stocks with a market value of $5 billion or more.

In the TV show And Just Like That, a character called Mr. Big suffered a fatal heart attack after riding one of Peloton’s deluxe exercise bikes. Peloton stock quickly dropped more than 14%.

The company, wisely in my opinion, put out a press release pointing out that the fictional Mr. Big “lived what many would call an extravagant lifestyle—including cocktails, cigars and big steaks.” Riding the bike, the company said, “may have even helped delay his cardiac event.”

About a year ago, when Peloton was one of the best-performing stocks around, I wrote, “I might buy the bike. I would not buy the stock.” I pointed out that Peloton had yet to show a full year of profits—which is still true. The company posted a couple of quarterly profits, but red ink is flowing again.

Peloton has cut prices on its bikes, but still had about 100 days of inventory on hand as of September 30. I don’t expect the stock to plunge, but I don’t think it will outperform the market either.

Altice USA (ATUS) is a broadband provider in rural areas (Suddenlink) and the New York City metropolitan area (Cablevision). Its biggest problem is cord cutting, in which people drop their cable service to get their news and entertainment via the Internet.

I have concerns about the company’s debt level. Its balance sheet is poor. Nonetheless, I think this stock will outperform the market in the next 12 months. It sells for only seven times earnings, and the Covid-19 pandemic unfortunately looks likely to keep people indoors s lot. They might as well watch TV.

After years of providing home-value estimates online, Zillow (ZG) got into the business of buying and selling (flipping) homes and flopped monumentally. Now it’s going back to its bread and butter.

I think the company can recover from its misstep, but unfortunately the basic business was rarely profitable. Zillow posted losses in eight of the past ten years. I enjoy the website but would avoid the stock.

Coupa Software (COUP), based in San Mateo, California, sells cloud-based software to help companies with invoice processing, procurement and expense management. Good niche, but crowded. In the past five years, Coupa has grown its sales at a 24% annual clip. Unfortunately, it has yet to show a profit. In 2020, profitless stocks often did great. I don’t think 2022 will be as kind to them. And Coupa shares are expensive at 15 times per-share revenue.

I may not be objective about Ring Central (RNG) (A hedge fund I manage has a short position in Ring Central) but I believe it’s an ongoing train wreck.

The company, based in Belmont, California, offers a cloud-based communication system that includes phone service, email and video conferencing. It competes against phone companies, Zoom Video Communications

ZM
and Cisco Systems

CSCO
, among others.

Since 2019, it has owned the naming rights to the Oakland Coliseum, now the Ring Central Coliseum. Ring Central has been growing fast (27% average annual revenue growth in the past decade) but has posted a loss in each of the past eleven years. It came close to breaking even in 2017 but losses have widened since then.

The Record

Each December beginning in 2011, I’ve recommended from one to three of the year’s biggest losers as stocks to buy. The average 12-month total return on these recommendations has been 36.1%, compared to 17.8% for the Standard & Poor’s 500 Total Return Index. My picks have beaten the index only four times out of ten. But the average return is high because the yearly figure exceeded 100% four times.

Last year was one out those successes. I recommended Marathon Oil

MRO
and Continental Resources

CLR
, which returned 134.6% and 161.6%, respectively. So the average was 148.1%. The S&P 500 returned 26.8%, including dividends.

Bear in mind that my column results are hypothetical and shouldn’t be confused with results I obtain for clients. Also, past performance doesn’t predict the future.

Disclosure: A hedge fund I manage has a short position in Ring Central. It owns call options on Cisco and Continental Resources.