Peloton is undoubtedly a tech company, but whether it is a software or a hardware company makes a difference in how you value it.

Recently in the news for a recall of its treadmill product, the company’s stock has cooled off a bit and retreated to $100 per share after a high above $160. Though some of this decline may be related to the broader slowdown of growth stocks.

That said, software companies typically trade at significantly higher multiples than their peers rooted in the world of services, or tangible products with real manufacturing challenges, supply chains, … and occasional product recalls.

We assessed the company’s valuation based on cash flow projections and revenue multiples, choosing a conservative 2x multiple between the 1.5x median of the leisure product category and the > 4x median of the software sector.

Here’s how our analysis compares to the current market cap:

Market cap: $30Bn
Valutico’s DCF valuation: $13Bn
2x Sales 2021Estimate: $9.2Bn

Even if considering Peloton as a software company and valuing the company at a richer 4x Sales multiple, one may find the current market cap to indicate an overvalued, but between a potential takeover scenario and the impressive growth figures, the full picture may be a bit more nuanced.
Peloton valuation

Link to the valuation

About the Author: Chris Botha

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Chris Botha has over 12 years experience in corporate finance and M&A. Prior to working in corporate finance Chris studied at the University of Johannesburg where he gained an honours degree in investment management. Chris is also a CFA Charterholder.