(Bloomberg) -- Peloton shares tumbled on Tuesday, dropping as much as 8.3% after Citron Research wrote that increasing competition and a high valuation could result in a massive sell-off in 2020.
The firm sees "clear flaws in the Peloton business model" and wrote that the stock could fall to $5 next year. Based on the Monday close of $34.77, that target represents downside of more than 85%. At current levels, Peloton is up nearly 12% since its September initial public offering.
Peloton's current valuation is "unrealistic" and "disconnected from all reality," the firm wrote in a report, adding that the fitness company has "all the makings of a compelling short."
In particular, Citron calculated that the company's enterprise-value-per-subscriber amounted to more than $15,600, significantly above the $655 average of its peers.
Citron also cited increasing competition as part of its bear call, noting that the company's hardware hasn't meaningfully changed since its exercise bike was introduced in 2014, while newer players have had added unique screen options.
"While Peloton has enjoyed a first mover advantage, the lack of differentiation of its bike has finally caught up to it as the competition is not only making virtually identical exercise bikes but ones that are both more affordable and functional," Citron wrote in the report.
While Peloton's ads have been the subject of some controversy, Wall Street is almost unanimously positive on the stock's prospects. Currently, 19 firms recommend buying Peloton, according to data compiled by Bloomberg. Only one has a hold rating on the shares and none recommend selling it. (Citron isn't included among the firms Bloomberg tracks.)
Among recent positive commentary, both KeyBanc Capital Markets and Baird have suggested that the company is seeing strong demand for the holiday season.
(Adds more detail from Citron report, adds chart and recent analyst commentary)
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