Trade of the Day: Turtle Beach (HEAR)


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One of the questions we like to ask ourselves when we see an explosive phenomenon like the runaway success of the multiplayer first-person shooter game Fortnite: Battle Royale — a game from Epic Games that has millions of players logged in concurrently at any time of day — is “who is selling the picks and shovels?”

This question has its origins in the California Gold Rush of the mid-1800s. Beginning in 1848, intrepid gold prospectors from all over the world made their way to California in search of the supposed riches just waiting to be found in stream beds and mines. While there certainly were those who did indeed strike it rich when they dipped their pans in the Northern California rivers or uncovered a vein of gold in the Sierra-Nevada mountains, most of the approximately 300,000 prospectors who made the journey left empty handed.

But do you know who did make money consistently during the gold rush? It was the merchants who were selling picks and shovels to the foolhardy prospectors.

Every explosive phenomenon has a group of merchants on the periphery who figure out a way to make money off of the phenomenon by providing the “picks and shovels,” and the Fortnite phenomenon is no exception. We believe one of the merchants that is taking advantage of the Fortnite phenomenon is Turtle Beach (NASDAQ:HEAR).

HEAR is a small-cap audio technology company headquartered in San Diego, California, that provides gaming headsets for a variety of platforms — from video game consoles and computers to mobile phones and tablets — under both the Turtle Beach and HyperSound brand names.

You see, when you’re playing a multiplayer video game, like Fortnite, you need to be able to communicate with your teammates, or “squad” in Fortnite lingo, in order to effectively compete against other players in the game. And to communicate when you are holding a game controller, using a keyboard or manipulating a touch screen, you need a headset with a microphone that will interface with your console/computer/phone/etc. that won’t glitch during key moments of the battle. This is exactly what HEAR provides — high-quality headsets that work seamlessly with your gaming device — and consumers are buying.

In fact, consumers are buying so much that HEAR saw a 185% year-over-year spike in revenues last quarter — generating $40.9 million in sales, with analysts expecting the company to report $48 million in sales this quarter.

Stellar sales growth numbers have sent this small-cap stock soaring. Analysts aren’t expecting a slowdown anytime soon, and neither are we.

Turtle Beach (HEAR): Chart source —

We are recommending buying shares of HEAR because we don’t need to use options to gain some profit-generating leverage on this small-cap stock. It’s growing by double-digit percentages all on its own. Plus, the options on HEAR are quite expensive, due to the volatile rise the stock has been experiencing, and we don’t want to cap our upside potential.

We expect HEAR to climb toward $30 per share as it continues moving higher within the up-trending channel it has been in since its last earnings announcement in May.

Buy shares of Turtle Beach (HEAR) common stock for a maximum price of $24.00.

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