Peloton Is Surging. Is the Connected Fitness Stock Finally a Buy?

Peloton Interactive (NASDAQ: PTON) just did something it's never done before. Shares of the connected fitness specialist gained 35% on Thursday, marking its biggest one-day surge since its IPO in 2019.

The gains come as investors have been desperate for any sign of a recovery from the beaten-down pandemic winner. Did investors get what they were looking for? Is it finally time to buy Peloton stock? Let's take a closer look at the latest results.

Image source: Peloton.

Is Peloton back?

Peloton's fiscal 2024 fourth-quarter report and the guidance it contains shows that the company still has plenty of challenges facing it, even as investors seem to think the stock is now moving in the right direction.

Revenue in the quarter rose 0.2% year over year to $643.6 million, topping estimates at $630.5 million and stemming a long decline in revenue.

Its subscription business continued to grow, with revenue up 2.3% year over year to $431 million, though that was driven by price increases. Paid connected fitness subscriptions and paid app subscriptions both fell, leading to a decline in members from 6.5 million to 6.4 million.

Sales of its bikes, treadmills, and other equipment continued to fall, declining 4% to $212.1 million. But the biggest improvement in the numbers came from the company's decision to close its Precor manufacturing plant in March. That helped drive its overall gross margin up by more than 17 percentage points overall, and Precor also achieved revenue growth above 20% year over year in the quarter.

That helped the company take a big step toward profitability, as it narrowed its generally accepted accounting principles ( GAAP ) net loss from $241.8 million to $30.5 million. On an adjusted earnings before interest, taxes, depreciation, and amortization ( EBITDA ) basis, it flipped a 2023 Q4 loss of $34.7 million to a gain of $70.3 million in Q4 2024.

What's next for Peloton

Peloton's guidance for 2025 also indicates that investors will have to be patient with the recovery.

For fiscal 2025, management expects hardware sales will decline and churn will increase modestly. It forecasts a 9% decline in paid connected fitness subscriptions at the midpoint to 2.68 million to 2.75 million, and it sees a similar decline in revenue of 9% at the midpoint to $2.4 billion to $2.5 billion.

There was one bright spot in the guidance. The company expects adjusted EBITDA of $200 million to $250 million, up from just $3.5 million last year. This is benefiting from the closing of the manufacturing plant, as well as a restructuring plan that includes layoffs and a target of $200 million in run-rate cost savings. Additionally, Peloton is introducing a new activation fee of $95 on used equipment, which should help boost margins and the bottom line.

Peloton is still in the process of finding a full-time CEO as well, and a comprehensive plan likely won't be put into place until the company finds a permanent CEO.

Is Peloton stock a buy?

It's surely encouraging for longtime investors to see the stock pop like this, but it's hard to buy into the Peloton recovery when revenue and subscriptions are still expected to fall significantly this year.

The cost-cutting is a smart move, but the company can't get back to success or brand relevance through cost cuts alone.

Peloton doesn't have to recapture its pandemic-era buzz in order for the stock to be a winner, but revenue growth seems like a prerequisite for longer-term success.

A new CEO could help breathe new life into the company, but departed CEO Barry McCarthy was supposed to be that leader and failed in that mission. Putting Peloton back on the right track will be a difficult task for even the most experienced turnaround specialist, as the pool of potential customers who didn't already consider trying the product during the pandemic's height is likely small.

Still, Thursday's pop shows that it won't take much for the stock to keep gaining. If the company can beat its 2025 guidance and show signs of improvement along the way, the stock should continue to climb from here. However, I wouldn't call the stock a buy until the company can figure out how to grow revenue again.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Peloton Interactive. The Motley Fool has a disclosure policy .