(NASDAQ: PTON) stock rose 26.3% last month, according to S&P Global Market Intelligence. There was no major news that shifted expectations for the company's short-term revenue or earnings, but investors became generally more bullish about Peloton's evolving long-term strategy. This created momentum for the stock and pushed it higher through a more aggressive valuation as macroeconomic data became more favorable in July.

Peloton's price-to-sales (P/S) ratio surged to nearly 20 during the COVID-19 pandemic, which is unsustainably high for the vast majority of stocks. Unsurprisingly, Peloton shares crashed in 2021 as investors became more rational about the company's financial prospects. People weren't going to be stuck working out at home permanently; there are plenty of fitness goals that can't be accomplished on a bike or treadmill; not everyone is willing to spend thousands of dollars on home exercise equipment; and there are a variety of alternatives that function as formidable direct and indirect competitors for Peloton.

None of these factors are catastrophic for the company, but they do place a cap on its revenue potential and pricing power. The correction to share prices was rapid; its P/S ratio tumbled below 0.8, suggesting that the wild price swings were driven by investor sentiment rather than operational performance.

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Source Fool.com