Turtle Beach (NASDAQ:HEAR) surged in Tuesday trading on no news from or about the gaming headset maker. This 7% move higher represents the latest in a series of extreme shifts that have defined HEAR stock over the last year.

That the stock rose by about 780% in 2018 makes the interest understandable. However, the fundamental question is how Turtle Beach stock will fare as peers offer competing products. Ultimately, Turtle Beach will have to maintain its market share amid intense audio technology competition to ensure its future.

HEAR Stock Bolstered by “Battle Royale” Gaming

In a previous article, I referred to HEAR stock as a “compelling trade,” but only for those who can take the volatility. And, volatile it has been. In mid-January, it spiked by more than 11% in a single day only to give back that entire gain over the following four days. Most credit a GameStop (NYSE:GME) report with the temporary surge. The games retailer saw a 29% increase in accessories sales over the holidays.

This comes off the almost eight-fold surge in the stock in 2018, as sales of Turtle Beach’s gaming headsets became a necessary component of one hot online game — Fortnite. The title, developed by North Carolina-based Epic Games, is a so-called “battle royale” game, a genre involving “last man standing” type games.

Additionally, an increased interest in esports has also helped HEAR stock. About 43 million viewers watched the League of Legends championship last year, about equal the viewership of an NBA championship game. Much like those games inspire kids to want basketballs, the gaming contests spark similar interest in top-end headsets.

HEAR’s Strong Financials

This focus has likely inspired rising profit forecasts in Turtle Beach stock. When HEAR reports earnings on March 5, analysts expect earnings of $2.60 per share for 2018, a substantial improvement from 2017’s loss of 28 cents a share. It also leaves HEAR stock with a compelling 6.4 price-to-earnings (PE) ratio.

However, volatility again comes in. Profit forecasts for 2019 so far come in at a much lower $1.65 per share level. This would leave HEAR with a forward PE of 10x. Although that may appear cheap, it calls into question the sustainability of profit growth.

Maintaining a Competitive Moat is Key

All this only reminds investors of a much bigger worry. Despite the renewed interest in Turtle Beach stock, its key product still maintains only a narrow moat. HEAR’s success will inevitably see challenges from competing headsets. Large gaming equipment manufacturers such as Sony (NYSE:SNE) or Microsoft (NASDAQ:MSFT) have every intention of matching or surpassing Turtle Beach. Microsoft’s cash hoard alone is over 500 times that size the market cap of HEAR stock. This weighs on the minds of many who would otherwise buy Turtle Beach stock.

Still, HEAR stock could find a model for success if management follows the lead of Roku (NASDAQ:ROKU). Roku acts as a neutral player among streaming services such as Netflix (NASDAQ:NFLX) or Prime from Amazon (NASDAQ:AMZN). In the same respect, Microsoft or Sony game controllers and headsets will likely favor games on their platform. Maintaining such a neutral reputation could prove helpful. They will still need to innovate to stay ahead of the competition. However, from that position Turtle Beach could expand its narrow moat. Without such a differentiator, HEAR stock could easily become a flash in the pan.

Bottom Line on HEAR Stock

Turtle Beach will have to maintain the moat it has built in order to succeed. The massive growth in HEAR stock, as well as the low 6.1x PE ratio, will inspire some buying.

However, HEAR remains small, particularly compared to the large and mega-cap companies in the gaming space. The popularity of esports could give Turtle Beach staying power. Still, it will have to maintain its reputation as larger and better-resourced companies seek to compete. Although companies such as Roku have thrived under such conditions, without a differentiator, the headset maker’s future could become bleak.

Cheap valuation and NBA-sized viewing audiences could further bolster HEAR stock. However, Turtle Beach’s small size and tenuous competitive moat make it a speculative play at best.

As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.