The stay-at-home trade is surging.
Bernstein upped its price target on Zoom to $611 a share on what it called a “huge runway” for the company with both businesses and consumers, while Bank of America Securities said Peloton could climb to $150 on strong demand for its products.
Zoom closed over 5% higher at $536.40 on Thursday. Peloton ended trading up nearly 4% at $136.43. Both stocks hit new record highs in Thursday’s session.
However, the bull-bear battle over both stay-at-home plays persists.
“Both of these names represent what I would call shiny toys with a lot of competitors,” Gina Sanchez, founder and CEO of Chantico Global and chief market strategist for Lido Advisors, told CNBC’s “Trading Nation” on Thursday.
While both companies “have the advantage of being great innovators,” both are facing serious obstacles in their respective industries, Sanchez said.
Zoom, for one, is finally “eking out about 2% operating margins, but they’re competing against a company like Microsoft,” she said. “This is a company that is sitting on a 37% operating margin, and that’s a lot of money that they can use to do battle against upstart competitors like Zoom. They’re not going to knock them out, but they’re certainly going to keep pace, and that’s going to put a cap on Zoom.”
Zoom trading at 211 times forward earnings versus Microsoft at 32 times also gave Sanchez pause, particularly considering Zoom’s 687% advance this year.
“Peloton, on the other hand, has a bigger problem,” she said. “Peloton is working against human nature. Most people just stop working out after six months when they start a new trend. This pandemic is not going to last forever, and it is an expensive product with a lot cheaper [rival] products that continue to come onto the market. That’s their challenge. Now, can they keep going for maybe another six months? Perhaps. But at some point, this starts to saturate.”
Todd Gordon, the founder of TradingAnalysis.com, took the other side of the trade.
With an engaged digital community, instructors with “social media influencer status” and a relatively low advertising budget, Peloton is succeeding where others including Under Armour have failed, Gordon said.
“They’re reaching a broad base without advertising,” he said in the same “Trading Nation” interview. “I bought the stock in May of this year after the dust settled. I’ve kept it ever since.”
Referencing the stock’s chart, Gordon noted that Peloton is reaching resistance in the $140s and “may see a pullback toward 100” in the near term.
“I’m in no hurry to take profits. I might hedge here with some downside put protection into the year,” Gordon said.
“The subscription revenue is growing massively,” he continued. “It’s going to drive those margins higher, especially as you’re moving toward selling the bikes on the open market. They’re kind of hedging against the reopening of the economy and a move back into the gym. That’s going to keep margins up.”
Gordon was also bullish on Zoom, though he acknowledged that it, like Peloton, appeared overbought.
“I think Zoom might continue to hold a competitive advantage against Microsoft,” he said.
Disclosure: Sanchez and Lido Advisors own shares of Microsoft.