Has Peloton turned things around and become a growth asset to buy again?

Actions of Peloton Interactive (PTON -5.03%) have taken off lately. After reporting stronger-than-expected quarterly results, investors suddenly turned bullish on stocks. In the past month alone, Peloton’s stock is up more than 40%.

Has the company given investors a reason to reconsider the stock as a growth investment, or is this likely to be nothing more than a short-lived rally?

Peloton shows improvement on the top and bottom lines

A strong earnings report can turn the tide for a stock in either a good way or a bad way. Peloton’s return seems to be progressing well.

For the first time in more than two years, sales are increasing. Revenue for the period ended June 30 totaled $643.6 million, up slightly from the $642.1 million the company reported in the year-ago period. The bump is less than 1%, but it’s still positive growth.

PTON Revenue (Quarterly Yearly Growth) data by YCharts

Another positive is that the company has cut expenses, and while its revenue may not grow significantly, its gross profit rose 55% to $312 million. Peloton still suffered an operating loss of $63.3 million, but that was a significant improvement from the $225.8 million loss reported in the year-ago period.

For the full fiscal year, the company also sharply slowed its cash burn rate. It used $66.1 million in the last 12 months from its day-to-day operating activities, which is significantly lower than the $387.6 million it used last year.

The company still has a lot of work to do

Recent quarterly results have been positive, but it is far too early to say that the company is back to growth and that all its problems are behind it. Peloton bikes cost well over $1,000, making them out of reach for most consumers, especially when many are still struggling with inflation and a possible recession on the horizon.

The company may have grown its revenue, but the number of paid app subscriptions at the end of June fell 26% year-over-year to 615,000. And the total number of members fell by 2% to 6.4 million. The decline in paid memberships and total membership could be signs that Peloton’s revenue will decline in the coming quarters.

And it’s also important to note that while the business grew its top line last quarter, it’s from a much smaller base than Peloton had a few years ago. Two years ago, the company’s revenue came in at just under $679 million. And a year earlier, revenue for the June quarter topped $937 million. So over the past two years, Peloton’s sales are down 5%, and compared to three years ago, they’re down 31%.

Is Peloton stock a buy?

While there were certainly positives in this latest earnings report, investors should be careful not to get ahead of themselves and assume the worst is over for the consumer discretionary stock. The business is still unprofitable, its growth hasn’t been all that impressive, and the number of users is down from the previous year.

Once you factor in a potential worsening of economic conditions and that many consumers are still struggling with inflation, it’s hard to see things getting any better for Peloton. A low-growth top line and shrinking losses are positives, but they’re not overwhelming reasons to think the business is worth taking a chance on right now.