In the past few days, I have built up my biggest position yet. This is the most nerve-wrecking, anxious position I have put myself into, yet I am confident about my bet and going for the long term.
After having reached a total return of 300% over a period of 3 and a half years (invested $35k, profit $105k), I decided to be extremly risky, and compound my profits to the next level. Enter Peloton. I have built a position in Peloton worth $83,000. That is 800 shares at an average cost of $103.68.
After Peloton had its recent earnings report, the stock took a dip as investors realized some profits and fell from $129 to $105. Soon after, Pfizer announced some great news about its vaccine trials, stating 90% effectiveness. That took the stock down even more to $93.
Around the same time, Peloton announced its content partnership with Beyonce, and it bounced up to $110. It was around this time, I decided to start building a position in Peloton. THe primary reason is because I wanted to jump into this stock no matter what, but on the dip. Up until its earnings on 11/5/2020, it had a monsterous run from around $25 in March during peak pandemic.
Funny story, I was actually initally extremely bullish on Peloton right after its very first earnings report after its IPO, because of its high growth rate and low sales multiple ( price to sales ratio ). I felt it was undervalued and boy was I right.
I bought $20k worth of it when it fell after releasing a controversial ad back in December 2019. Right when the pandemic hit, I bought more of it while it fell to a low of $19, but as soon as gyms were officially announce to shut down because of Covid, the stock jumped up. I made a good profit and sold it around $45-$50. Yes, I missed the bigger run.
Now, after having looked at its recent earnings ; 232% revenue year-over-year growth, growing profitability, increased guidance for 2021. What does that tell me? the business is growing rapidly. The caveat is that Peloton is facing supply constraints from the overly demand during the pandemic. That to me, sounds like a good problem to have. I see Peloton as taking a short term hit on their profitability to spend more on shipping to ensure customers get their deliveries on time. This will improve its brand, grow the netowrk of connected-fitness Pelotonistas, and drive the stock price up.
Even with the positive vaccine news, I dont see people leaving the Peloton ecosystem anytime soon. A customer who bought a Peloton bike or treadmill is not going to leave that for the gym. Rather, the customer will pay to use the Peloton app, which creates a sustainable, recurring revenue for the business. Vaccine distribution will be a difficult logistical problem to solve, which might make it until summer of 2021 until the vaccine is effectively distributed.
Its new partnership with Beyonce sounds like a game changer. This is comparable to what Michael Jordan did for Nike, Beyonce can do for Peloton .
Having used up $83k in PTON from a portfolio value of ~$130k, I have put around 65% of my capital into a single stock, and THAT is my entire portfolio. Many people say never put your eggs in one basket, but I feel like if youre extremely confident, make a high risk bet. Especially since I am only 26, and I have my life ahead of me, this is the time to be risky. High risk delivers high rewards. Only time will tell if I'm doing the right thing.
The point I am making with this article is my view AGAINST diversification. I like to hold only 1-3 stocks at a time, and trade them in and out. Check out this video on why Diversification is Dumb . Pile into something you believe in. One Way Bets!