Key insights
- Peloton shares rose after a hedge fund disclosed a long position, citing strong free cash flow, insider buying, and a discounted valuation relative to peers. The company has shown positive free cash flow for four consecutive quarters and refinanced debt, extending maturities. While revenue guidance was lowered, EBITDA and free cash flow guidance were raised. Subscriber churn improved, and the fund manager detected positive language patterns from the CEO, suggesting a potential turnaround.
Investing.com -- Peloton Interactive Inc (NASDAQ:PTON) shares rose 4.2% Friday after hedge fund manager Eric Jackson disclosed a long position at $4, citing the company’s cash generation and insider buying as evidence the market is mispricing the fitness equipment maker.
Jackson, founder of EMJ Capital, said Peloton generated $345 million in free cash flow over the trailing twelve months while trading at just 5 times that figure—a steep discount to comparable subscription-based businesses. Chewy (NYSE:CHWY) trades at 20 times free cash flow, Roku (NASDAQ:ROKU) at 22 times, and Sonos (NASDAQ:SONO) at 10 times, he noted.
The company reported $1.18 billion in cash on its balance sheet, representing 67% of its current market capitalization. Seven insiders, including CEO Peter Stern and former CFO Liz Coddington, purchased shares on the open market in March at $3.86, Jackson said.
Peloton reported fourth quarter revenue of $656 million, up 19% sequentially from the prior quarter, though down from the year-ago period. The company has posted four consecutive quarters of positive free cash flow, with management raising full-year EBITDA and free cash flow guidance by approximately $25 million despite lowering revenue guidance by 1%.
Monthly subscriber churn improved to 1.6% in the first quarter of fiscal 2026 from 1.8% in the prior quarter, even after the company implemented a price increase. Connected fitness subscribers totaled 2.73 million as of the most recent quarter.
Jackson said he analyzed 26 earnings call transcripts spanning three CEO tenures using a proprietary system called TonalityIQ, which detected what he termed "presuppositional confidence" in Stern’s language—a pattern he said preceded similar re-ratings in other turnaround situations.
The company refinanced $800 million in convertible notes due in February 2026, extending maturities to 2029 through a $1 billion term loan and $300 million in new convertible notes. Total debt stands at $1.95 billion, with annual interest expense of approximately $140 million against $345 million in free cash flow.
Peloton’s next earnings report is expected around May 8, when the company will report third quarter fiscal 2027 results. Subscriber count and churn rate data from that report will determine whether the subscriber base is stabilizing, Jackson said.
Short interest in Peloton stands at 16.7% of shares outstanding. Institutional options activity included a purchase of 10,000 May $4/$5 call spreads on March 24, representing $3.3 million in premium.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.