Have you heard of Turtle Beach Corp (NASDAQ:HEAR) before? Sporting a market cap of just $300 million, Turtle Beach stock isn’t an everyday name to many investors. However, its 1,000% rally from its February lows below $2 certainly gets people’s attention.
After moving from $2 to $22 though, how much meat can really be left on the bone? Obviously stumbling upon Turtle Beach stock in the single digits would have been more helpful, much like buying iQiyi (NASDAQ:IQ) or Huya (NYSE:HUYA) on their IPOs would be better than chasing them at $45 apiece.
In any regard though, if I or anyone else had pointed out Turtle Beach stock at $8, most wouldn’t want it. Why? Because at that point it had already quadrupled. Never mind that it’s now tripled from $8, but hindsight makes everything perfectly clear in the investing world. So let’s see if this $300 million market cap company has something worth buying at this point.
What’s Driving Turtle Beach
First, Turtle Beach makes headsets aimed at the gaming and computing market. It also has a new technology, HyperSound, that allows for top-of-the-line 3D sound. While overlooked by many, audio plays a significant role in the immersive aspect of gaming and other interactions.
Second, it should be known that Turtle Beach stock went through a 4-for-1 reverse stock split, in an effort to stay within compliance with Nasdaq. That said, the gains in the stock are still real.
A few days after the split, the company revised its guidance for the quarter. Revenue would now come in near $40 million vs a prior guidance of $29 million. Earnings should be just under break-even vs a prior expectation of a 12 cent per share loss. That sent Turtle Beach stock jumping 30%.
The company then proceeded to smash those estimates as well. Sales of $40.9 million came in even ahead of management’s high-end of the range. Earnings weren’t at break-even, as they came in at 16 cents per share, 18 cents ahead of estimates. Gross margins more than doubled to 36.8%. From CEO Juergen Stark:
“This growth was due to market share gains on top of a very strong overall market, propelled by the successes of Fortnite and PlayerUnknown’s Battlegrounds, as these games have driven new gamers into the market and much higher headset attach rates than we have historically experienced.”
The company also took steps to retire Series B preferred stock with a high-interest rate and shore up its balance sheet.
Valuing Turtle Beach Stock
Management expects second-quarter revenues to grow 151% to $49 million and jump to $205 million for the full year, up almost 40%. On the earnings front, they expect 95 cents per share in profit for 2018. However, they also acknowledged that their second-half estimates are conservative. So if we see more explosive strength, it could fuel another run in Turtle Beach stock.
Based on management’s outlook, Turtle Beach now trades at roughly 22 times this year’s earnings estimates.
As the secular trend continues in gaming, something we have talked about with Nvidia Corporation (NASDAQ:NVDA), Advanced Micro Devices, Inc. (NASDAQ:AMD), Electronic Arts Inc (NASDAQ:EA) and Activision Blizzard, Inc. (NASDAQ:ATVI), then management’s outlook may very well prove conservative.
If so, 22 times earnings may be more like 17 times earnings should the price stay where it is. For the analysts’ part, they expect roughly 40% earnings growth next year to $1.44 per share and 15% growth in sales to $235 million.
Trading Turtle Beach Stock
Above is a short-term chart of Turtle Beach with a short-term trend-line in place. Those looking to start a small, speculative position may consider doing so around $20.
A pullback to $15 seems unlikely right now, but maybe if the market goes through a broad pullback, Turtle Beach will revisit this level. If so, it’s likely the 50-day moving average will come into play, currently down near $12.75.
Below you’ll see a long-term weekly chart. You may notice that both the $10 and $15 levels are significant on this chart. So as much as the longs would despise a $7 per share pullback to $15, it would be a great chance for new buyers to step in. $15 has significant support and greatly lowers investors’ risk.
That’s due to the great risk/reward setup: a notable close below $15 means investors can cut their losses at a minimal amount, while upon entering the position having a chance to play a rebound back to its prior highs or even more.