Whether the words "spin cycle" call to mind a washing machine or a bike probably depends on your lifestyle. But exercise enthusiast or not, you can now invest in fitness without getting off your couch.
Peloton Interactive Inc., which went public in September 2019, sells exercise bikes and treadmills that stream its exercise classes. Think of it as a gym class in your own home — an idea that for many is making more and more sense during a time of lockdowns.
Its shares trade under the ticker symbol PTON, but before you buy Peloton stock, here are a few things to consider:
1. Research Peloton stock (aka, know your ride)
Ready to race to the starting line — that is, buy shares of Peloton? Before you buy any stock, it’s important to understand the company you’re supporting with your hard-earned dollars. You don’t want your ride with Peloton to be spoiled by major potholes.
While any type of investment carries risk, investing in a younger company brings unique challenges. When it went public, the company alerted potential investors that it had incurred operating losses every year since its inception in 2012.
The closing of gyms across the country due to the coronavirus pandemic led many to turn to Peloton for their exercise kick, and that fueled big sales growth in the final quarter of the company's 2020 fiscal year and great expectations for 2021. But how sustainable is the growth? What will happen when lockdowns lift and gyms reopen? These are some of the questions to consider before buying Peloton stock.
Facts, figures and filings are collected at Peloton's investor relations website, and key information and research is also available through online brokers or independent analysis sites such as Morningstar.
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2. See how Peloton stock fits in your portfolio
Balance is important on a bike (even a stationary one), and so it is as well in your portfolio. If you’ve decided you like Peloton as a company, next assess how the stock would slot in alongside your other investments.
Diversification and asset allocation — two tenets of investing that involve having your money across different investments — can be a safeguard so that if one company or industry encounters headwinds, only a portion of your portfolio loses value. If you have a slice of your portfolio allocated to individual stocks, and Peloton fits in there, then you might ride on up and buy some shares.
But consider, too, something you could call the investment version of a peloton: an index fund or exchange-traded fund. In a bicycle-racing peloton, a group of riders bands together to improve performance by reducing overall wind resistance. With a fund, a group of diverse investments works together to improve performance by reducing risk. Peloton is part of a number of funds, and there your money is spread across a variety of investments that are less likely to all drop in value at once.
3. Decide how much you want to invest
If you like Peloton, and the stock fits alongside your other investments, it's time to think about how many shares to buy. But there's more to such a decision than the simple math of the amount of money you have divided by the share price.
Look at your overall financial situation and answer these questions:
How will my investment amount affect the balance of my portfolio? Building and maintaining a diverse basket of assets is the goal of many investors. When it comes to individual stocks, one common tip is to not have more than 10% of your total portfolio in a single company.
What’s my time frame? If you’ll need this money in five years or less, you might reconsider investing in stocks altogether. There are better alternatives for short-term savings. Also, do you have enough cash set aside for an emergency? Financial experts often suggest having enough to cover three to six months of expenses.
Will I continue to invest in Peloton? You don't need to put a big sum into a stock at the outset. Indeed, such haste can cost you. A better approach might be the strategy known as dollar-cost averaging, wherein you make regular investments over time so as to avoid buying only when prices are high.
For more, including a breakdown of various order types, see our guide on how to buy stocks.
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Disclosure: The author held no positions in the aforementioned securities at the time of publication.