How Strong Is PTON's Free Cash Flow Momentum Heading Into FY26?

Peloton Interactive, Inc. PTON appears to be entering fiscal 2026 with a more credible pathway toward sustained free cash flow, marking a shift from a multi-year restructuring phase to a period defined by disciplined operating execution. Management recently raised its full-year free cash flow floor to at least $250 million, signaling increased confidence that cost restructuring, tariff relief and a more favorable hardware mix are beginning to show through in the company’s cash generation. With a materially improved balance sheet, investors are now focused on whether Peloton can maintain this momentum as it ramps production of its newly launched hardware portfolio and absorbs temporary churn pressures tied to subscription price increases.

In the first quarter of fiscal 2026, Peloton generated $67 million in free cash flow, a sharp improvement from the $10 million recorded a year earlier. The quarter benefited from stronger operating profitability — adjusted EBITDA reached $118 million, above the high end of guidance — as well as lower-than-expected tariff rates, delayed tariff implementation and earlier realization of indirect cost savings. While management highlighted roughly $30 million in timing-related benefits, underlying trends point toward increased operating leverage across the business, even after normalizing for those items.

Looking ahead, Peloton expects margin expansion to remain a core driver of cash generation. The company raised its full-year gross margin outlook to 52%, a 100-basis-point increase from prior guidance. Hardware profitability also showed signs of structural improvement; excluding the Bike+ recall accrual, fiscal first quarter hardware margins would have been 15.8%, up 660 basis points year over year, supported by a mix shift toward higher-priced products and lower logistics and warranty costs. These factors underpin Peloton’s increased adjusted EBITDA outlook of $425-$475 million, representing double-digit improvement even as the company absorbs softer Connected Fitness demand and anticipated churn from recent pricing changes.

Still, the near-term environment remains complicated. The recall affecting 833,000 Original Series Bike+ units is expected to create modest subscription pauses in the fiscal second quarter, while the broader Connected Fitness category continues to contract at a low-single-digit pace. Peloton also carries a larger proportion of rental and secondary-market users, a segment historically associated with higher churn. However, this is partially offset by the increasing tenure of its long-standing subscriber base.

Peloton expects a modest gap between adjusted EBITDA and free cash flow for the remainder of the year, aided by low capital intensity and continued working capital efficiency. With better visibility into margin improvement and cost savings, the company appears increasingly positioned to achieve its elevated free cash flow target, potentially opening the door to broader capital allocation options once leverage settles at management’s preferred range.

PTON’s Price Performance, Valuation & Estimates

Peloton shares have declined 11.5% in the past three months compared with the industry’s fall of 15.8%. In the same time frame, other industry players like Planet Fitness, Inc. PLNT have declined 0.9%, while Brunswick Corporation BC and Acushnet Holdings Corp. GOLF have gained 1.8% and 1.9%, respectively.

PTON Three-Month Price Performance

PTON stock is currently trading at a discount. It is currently trading at a forward 12-month price-to-sales (P/S) multiple of 1.25, well below the industry average of 2.02. Then again, other industry players, such as Planet Fitness, Brunswick and Acushnet Holdings have P/S ratios of 6.16, 0.76 and 1.81, respectively.

The Zacks Consensus Estimate for Peloton’s fiscal 2026 earnings per share has increased in the past 60 days.

The company is likely to report solid earnings, with projections indicating a 136.7% surge year over year in fiscal 2026. Conversely, industry players like Planet Fitness, Acushnet Holdings and Brunswick are likely to witness growth of 16.8%, 3.9% and 29.2%, respectively, year over year in 2026 earnings.

PTON currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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