Stock peloton on the rise after the announcement of the acquisition of Precor
Peloton stock was trading sharply higher in pre-market trading in the United States today after announcing plans to acquire fitness equipment company Precor for $ 420 million. The acquisition would strengthen the capabilities of Peloton’s supply chain at a time when it faces high demand.
Notably, when releasing first quarter 2021 results last month, Peloton highlighted supply constraints for the “foreseeable future”. “As we rapidly grow our organization to meet the extraordinary demand for our products, we realize that some of our members have faced prolonged delays in receiving our products or fulfilling support requests.” said John Foley, general manager of Peloton.
Peloton acquires Precor
Meanwhile, in an effort to increase its manufacturing footprint and complement its research and development capabilities, Peloton agreed to acquire Precor for $ 420 million, making it the company’s largest acquisition.
Peloton plans to produce its connected fitness equipment in the United States by the end of 2021 and the acquisition of Precor would help the company reach that milestone. Commenting on the acquisition, Peloton President Willian Lynch said, “By combining our talented and committed R&D and supply chain teams with the incredibly knowledgeable team at Precor and their decades of experience, we believe that we will be able to lead the global connected fitness market in terms of innovation and scale.
What does the acquisition of Precor bring to Peloton?
Acquiring Precor would help Precor gain access to Precor manufacturing facilities and increase production capacity. “The acquisition adds 625,000 square feet of manufacturing capacity in the United States with in-house tooling and manufacturing, product development and quality assurance capabilities in Whitsett, NC and Woodinville, Inc. ‘Washington State,’ Peloton said in its statement.
He added that he would be “able to control the entire production process, from design to shipment, and increase the total production scale, while maintaining a high level of product quality.” . Peloton expects to reduce the wait time for its buyers as it begins manufacturing its equipment in the United States.
The demand for Peloton equipment has increased this year as more and more people train at home. The company has not been able to meet the growing demand. “We have seen a ton of growth. No one would wish a global pandemic on anyone, but it has been a tailwind for our business, ”said Lynch. He added: “Tracking this growth, which has been a moving target, has been a high priority for the company.”
Commenting on the strategic rationale for the deal, Lynch said, “As we invest in scaling up our manufacturing, this is an area where Precor is very strong. Peloton stock has gained over 400% this year amid the rally in home stocks which include Amazon and Netflix.
Platoon stock in 2020
While some of the other home stocks hit their 2020 highs, Peloton hit a record high of $ 144.88 on Monday. Shares also rose more than 7% in pre-market trading on Tuesday.
It should be noted that while demand growth for some of the other home inventory may slow after the pandemic, Peloton is expected to experience high growth rates in the near future. In its first fiscal quarter of 2021, Peloton saw a 232% year-over-year increase in revenue. It expects to post revenue of $ 1 billion in fiscal second quarter 2021, which is strong quarter-over-quarter growth.
In fiscal 2021, Peloton expects to post revenues of $ 3.9 billion and achieve gross margins of 41%. The company expects to have 2.17 million Connected Fitness subscribers by the end of the fiscal year. These subscribers pay a recurring fee to Peloton and are a major revenue driver.
During this time, Peloton stock seems technically overbought with a 14-day RSI (Relative Strength Index) of 72.6. An RSI above 70 signals overbought positions, while values below 30 are associated with oversold positions.
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