• by Sarah Mahoney  @mahoney_sarah, January 20, 2021

While consumers have been pouring love and money into brands that benefit from changing pandemic behavior, some think the ride may be ending. A new report from UBS is downgrading its ratings on both Peloton and Chewy, citing "the rising trend of bull market optimism" in a handful of businesses that have been big beneficiaries of pandemic-fueled preferences.

Analyst Eric Sheridan says he sees the companies as "emblematic of a market that values growth over any semblance of valuation … Given recent market activity, we think investors need to be wary."

He says he continues to believe in Peloton's growth and revenue prospects. But he is more cautious about its ability to drive accelerated subscriber growth due to potential operational challenges following the heightened consumer demand seen during the COVID-shaped trends of the past year.

"While we still think Peloton has a long-term opportunity to disrupt traditional fitness business models," writes Sheridan, he is moving the company from "Neutral" to "Sell," and lowering projections "to reflect more normalized growth rates after COVID-19."

The stock has been one of the pandemic's high-fliers, rising from $20 a share last March to $163 just before Sheridan's report, when it dropped to $152.

Others disagree. Oppenheimer, which continues to rate Peloton as a stock that will "Outperform," believes the company will beat expectations when it announces the number of new subscribers added. It believes America's journey back to gyms faces a long recovery and that Peloton has captured12.6% of the 4.4 million churned gym members.

And Oppenheimer expects Peloton’s recent acquisition of Precor, announced late last month, to alleviate some of the near-term supply chain constraints that have dogged the brand, with many new customers continually irate over slow delivery.

UBS' Sheridan is similarly upbeat about the strength and growth prospects of Chewy, the ecommerce site that's boomed while servicing all those newly adopted pandemic pets. The downgrade stems from a new analysis of risks versus rewards.