Why Peloton Stock Flopped on Friday

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What happened

Shares of popular next-generation exercise machine company Peloton Interactive (NASDAQ:PTON) ended the week on a down note. The stock fell by nearly 4% on Friday, after it was dropped from a high-profile equity index.

So what

After market hours on Thursday, Nasdaq (NASDAQ:NDAQ) announced that Peloton stock would no longer be on its Nasdaq-100 Index. It is being replaced by that of logistics company Old Dominion Freight Line, effective prior to market open on Jan. 24.

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Old Dominion will also replace Peloton on two associated indexes, the Nasdaq-100 Equal Weighted and the Nasdaq-100 Ex-Technology.

The Nasdaq-100 is a large-cap index that’s composed of the most highly capitalized stocks traded on that exchange. With a stock price that has generally withered over the past year or so, Peloton has seen its market cap decline precipitously. It currently stands at just over $10 billion; last year around this time it was over six times that figure.

Now what

Inclusion on, or exclusion from, a closely watched stock index isn’t reason alone to buy or sell a stock. Still, it’s concerning when a company gets its membership to such a high-profile club canceled. This doesn’t help its reputation as a choice investment, plus it drops from the radars of the many index funds that trawl the Nasdaq-100 and its ilk for their portfolios.

This is the latest in a growing stack of setbacks for Peloton, which has generally fallen out of favor as it’s seen by many to be a coronavirus play. But this might provide an opportunity to buy the stock at a relative bargain, since the company’s business model is solid and it has built a large and generally loyal customer base. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.