John Dorfman: Peloton Leads Market Losers Parade

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Part of the decline in Peloton Interactive Inc. shares this year was fun. But the 73% loss for the year to date (through December 21) wasn’t all that humorous.

As the attached table shows, Peloton suffered the biggest loss of any stock with a market value of $ 5 billion or more.

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On the “And Just Like That” TV show, a character known as Mr. Big suffered a fatal heart attack after riding one of Peloton’s luxury exercise bikes. Peloton stock quickly fell more than 14%.

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

About a year ago, when Peloton was one of the top performing stocks on the market, I wrote, “I could buy the bike. I would not buy the stock.

I pointed out that Peloton has yet to post a full year of earnings – which is still true. The company posted some quarterly profits, but the red ink is flowing again.

Peloton has reduced the prices of its bikes but still had around 100 days of inventory as of September 30. I don’t expect the stock to dive, but I also don’t think it will outperform the market.

Altice

Altice USA is a broadband provider in rural areas (Suddenlink) and the New York metropolitan area (Cablevision). Its biggest problem is the cable cut, in which people give up their cable service to get their news and entertainment through the Internet.

I have concerns about the level of indebtedness of the company. Its record is bad. Nonetheless, I believe this stock will outperform the market over the next 12 months. It only sells for seven times the profits, and the covid-19 pandemic, sadly, seems likely to keep people inside a lot. They might as well watch TV.

Zillow Group

After years of providing home valuation estimates online, Zillow got into the buying and selling of homes and flopped monumental. Now he’s going back to his bread and butter.

I think the company can recover from its misstep, but unfortunately the core business was rarely profitable. Zillow has recorded losses in eight of the past 10 years. I like the site but I would avoid the stock.

Coupa software

Coupa Software Inc., based in San Mateo, Calif., Sells cloud-based software to help businesses with invoice processing, purchasing, and expense management. It’s a good niche, but crowded. Over the past five years, Coupa has grown its sales by 24% per year. Unfortunately, he has yet to show a profit.

In 2020, non-profit stocks often performed well. I don’t think 2022 will be this kind to them. And Coupa shares are expensive at 15 times earnings per share.

Central ring

I may not be objective about Ring Central Inc. (see disclosure at end of this column), but I think it is a train wreck in progress.

The company, based in Belmont, Calif., Offers a cloud-based communications system that includes telephone service, email, and video conferencing. It competes with the telephone companies, Zoom Video Communications Inc. (ZM) and Cisco Systems Inc. (CSCO), among others.

Since 2019, he has held the naming rights for the Oakland Coliseum, now the Ring Central Coliseum.

Ring Central has grown rapidly (27% average annual revenue growth over the past decade), but has recorded a loss in each of the past 11 years. It came close to breaking even in 2017, but losses have widened since then.

The record

Every December starting in 2011, I recommended buying one to three of the year’s biggest losers as buy stocks. The 12-month average total return for these recommendations was 36.1%, compared to 17.8% for the Standard & Poor’s 500 Total Return Index.

My picks only beat the index four times out of 10. But the average return is high because the annual number has exceeded 100% four times.

Last year was one of those successes. I recommended Marathon Oil Corp. (MRO) and Continental Resources Inc. (CLR), which returned 134.6% and 161.6% respectively, for an average of 148.1%. The S&P 500 returned 26.8% including dividends.

Keep in mind that the results for my columns are hypothetical and should not be confused with the results I get for clients. In addition, past performance does not predict the future.

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

John Dorfman is president of Dorfman Value Investments LLC in Newton Upper Falls, Massachusetts, and a syndicated columnist. His company or his clients may own or trade securities mentioned in this column. He can be contacted by email.


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