$PTON Edition of Bottom Catching

A bunch of stocks on my watch list hit all-time highs this week. Markets are rallying. Many stocks are raging. And many others are filing for bankruptcy. It’s a crazy time. We’re amid a pandemic, yet we’re unsure if we’re in a bear or bull market. I keep a daily log of the madness in 2020… Corona Crash or Everything Bubble Pop? And I almost included my Peloton stock story on that page but figured it’s deserving of its own, focused post.

We bought our Peloton bike in September 2018. I’ve done 506 cycling workouts so far while my wife has completed 803 total workouts, 469 on the bike. We’re happy customers. We love the convenience, product, and community. We’ve referred over a dozen others with our referral code. But I didn’t buy $pton when they went public in September 2019, exactly a year after we bought our bike. It opened at $27/share with a ~$8B market cap.

I didn’t buy when they went public because:

  • I stay away from IPO’s recognizing it stands for ” Imaginary profits only” or ” Idiotic, preposterous, and outrageous” or “It’s probably overpriced.” I read Grahams The Intelligent Investor in 2014…
  • I had no idea of a proper valuation.
  • I don’t like buying hyped/consumer names.
  • I (at the time) don’t own many individual stocks.

The reasons I didn’t buy $pton are the same reasons I don’t buy most new public offerings.

But there are a lot of things I liked about the company that made me want to buy the stock at a later date, at a safer price. They include:

  • Proven ability to iterate and execute.
  • Room for growth (new products, domestically, internationally).
  • Great product(s).
  • Strong brand with loyal, engaged community.
  • Biz model. Hook them with the big cash outlay, continue raking in recurring revenue.

I set my sights on $18 from the day they went public. I entered a limit order for shares at $18. It never hit, and the order expired. It touched $20.46 a month after going public but rebounded without ever getting that low again until all hell broke loose in March of 2020. Shit hit the fan around March 9 for the markets. On March 12, $pton hit a low of $18.01. My target came. But the floor was falling from beneath us. Major indexes were down ~30% YTD, so surely I felt (and still do) like much lower lows were coming. So I just bought a few shares in the $18s to dip my toes and submitted limit orders for a lot more at $16.50. Here I am, the genius for holding out for $18, and $18 came. But $16.50 never did. The share price hit a low of $17.70 on March 16, rebounded into the $20s on March 17, and then became a quarantine darling– shooting to an ATH today opening at $45.70. Here are some charts from their Q3 2020 Shareholder Letter:

Here’s the main lesson from my experience with $pton:

  • Don’t try to get cute with catching bottoms, even when the market is in free fall. I had $18 (market cap of $5.5B) as my safe and comfortable entry point for 6 months, but I blew it. Granted, it wasn’t normal times. The entire market was cratering. But I still should have had the conviction to buy. Another $1.50 lower wouldn’t have made a material difference. Similarly, I could have just bought it around $19 or $20.

Only time will tell, but as of now, it appears like $pton is the one that got away. I’ve captured the story and will try to learn from it. But I won’t dwell. The worst thing that could happen is over-trying to avoid it from happening again. I don’t think I’ll ever regret not prioritizing margin of safety and being prudent during times of extreme uncertainty like March of 2020.

I’m also conscious that I have an ’emotional connection’ with $pton because I love the product and am rooting for the company. Therefore I’m probably better off not having it be a holding of meaningful size in my portfolio.

Ultimately I’m not kicking myself because of 2 solid reasons:

  1. My wife and I are healthy, which is all that matters during a pandemic.
  2. The market is behaving irrationally. I still believe we’ll hit those March lows again for many others on my watch list. With that being said, I don’t think we’ll see $pton in the teens ever again.

2020… Corona Crash or Everything Bubble Pop?

#Peloton Posts

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