Why Peloton Stock Surged Today

Key Points

• Goldman Sachs published new coverage on Peloton stock after the exercise-tech company published its quarterly results yesterday.

• Goldman raised its rating on Peloton from neutral to buy and increased its one-year price target on the stock from $7 per share to $11.50 per share.

• Peloton's margins have recently improved significantly thanks to cost-cutting moves, and the company is making moves to help stabilize sales.

• 10 stocks we like better than Peloton Interactive ›

Pelton (NASDAQ: PTON) stock closed out Friday's trading session with big gains. The company's share price gained 10.3% on the day's trading and had been up as much as 11.5% earlier in the session.

Peloton's valuation bounded higher today thanks to bullish coverage on the stock published by Goldman Sachs. The positive analyst coverage came on the heels of better-than-expected quarterly results released by the company -- and the new analyst note helped extend the exercise-machine specialist's rally.

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Positive analyst coverage helped Peloton stock soar today

Yesterday evening, Goldman Sachs published new coverage on Peloton -- and the note had a big impact on the stock in today's trading. With its new coverage, Goldman raised its rating on Peloton stock from neutral to buy. The investment firm also increased its one-year price target on Peloton stock from $7 per share to $11.50 per share. Even after a big gain for Peloton's valuation today, Goldman's new price target on the stock still suggests additional upside of roughly 47%.

What's next for Peloton?

Peloton recently published results for the fourth quarter of its last fiscal year, which ended June 30, and the company's cost-cutting initiatives pushed the business to an unexpected profit in the period. While the company's sales still declined by roughly 6% year over year in the quarter, cost-discipline led to margins that were significantly better than anticipated.

Wall Street had expected the business to record a loss of $0.05 per share in fiscal Q4, but Peloton actually recorded a profit of $0.05 per share in the period -- and its margin improvement appears to be sustainable in the near term. Management also anticipates that the business's sales decline will slow in the current fiscal year. There are some indications that efforts to grow sales among enterprise customers are bearing fruit.

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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group and Peloton Interactive. The Motley Fool has a disclosure policy.