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    A sector to avoid as of Aug. 20, 2020.

    Jeff highlighted Peloton as a prominent stock in this sector on July 4, 2020.

    How about Peloton? (PTON).  Al Root (Barron’s) interviews Prof. Aswath Damodaran on “What Peloton Needs to Do to Keep Thriving.”  His original take on the stock:

    When it went public, I didn’t like the company. Why? Because of the business model. Forty dollars a month, and it’s a $2,500 treadmill. I remember watching an analyst on CNBC saying, “All my neighbors have Peloton.” And my reaction was, then you need to get out of whatever neighborhood you live in and walk a few blocks.

    He continues to describe an alternative, lower-priced subscription that will work with any exercise bike. That is a high-margin mass model “where you forget about the equipment, which is an expensive, low-margin business, and you make it all about subscriptions.”

    [Jeff] I am a big fan of Dr. D. This analysis is a great fit with our matrix analysis.  The company got great visibility and terrific sales from the pandemic.  What will happen on the other side of the recession?  How much of the gain can the company maintain?  I expect some business slowing, even with an effective change of the business model.  I place it in A3 without a business model change and B3 with a successful shift.  I see no rush to buy until we have more visibility into the post-recession model.

    Jeff discussed Peloton again on July 18, 2020. An excerpt on the stock from Barron’s follows below:

    Peloton Interactive is a big pandemic success story, making it a key example for Row C.  It is an expensive alternative to the fitness center.  (Barron’s).

    Peloton’s bike starts at $2,245, while its treadmill, Tread, begins at $4,295. A rower “over time, could be interesting,” Woodworth said, though that market is smaller than the bike’s, and “much, much smaller than Tread and bootcamp.”

    Peloton generates subscription revenue from an app, which costs $12.99 a month, and its $39 monthly membership. Is there a risk the app could draw users from membership? The app, she said, was originally intended as a companion for traveling members, but gained traction after Peloton released the Tread and expanded digital offerings.

    [Jeff] This is an interesting idea to follow, but there is no need to rush.  There is no reason to guess about the needed change in the business model.  Many investors are making the mistake of looking backward and buying because of the recent success.

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