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Bull of the Day: Turtle Beach Corp (HEAR)

Jeremy Mullin
·4 min read

Turtle Beach Corp (HEAR) is a Zacks Rank #1 (Strong Buy) that is an audio technology company that designs audio products for consumer, commercial and healthcare markets. The San Diego company was founded in 1975 and has over 200 full-time employees.

Turtle Beach has a very low market cap of $250 million with a forward PE over 30. Those that invest should be aware that the stock is pretty volatile with a 1.82 beta.

Return to Glory

If this stock sounds familiar, it’s because Turtle Beach was one of the hottest stocks in early 2018. The company had some nice earnings beats early that year, which was attributed to the success of Fortnite and other games that demanded headsets made by the company.

The stock went from an unknown $3 stock to a $34.50 in just three months. HEAR slowly fell back to earth the rest of the year and in the March panic earlier this year, the stock bottomed out under $4 a share.

However, due to the COVID-19 lockdowns, battle royale games are hotter than ever. With more players, comes more buyers of headsets, which has propelled earnings and the stock once again.

Earnings Beat

On May 7th the company reported 69% surprise earnings beat and guided both the top and bottom line higher. A month later, the company guided even higher, raising Q2 earnings to $74-77 million vs the $43.6 million expected. The company once again cited Fortnite as the root cause for their success. Here is the CEO Juergen Stark some with comments after the guide higher:

“Retail demand has remained strong and, we believe, sales have been highly limited by continuing supply constraints, such that any increase in supply leads directly to revenues and sell-through. We were able to further significantly increase factory output and expedite deliveries into the second quarter to achieve additional expected sales of at least $27 million above our prior outlook. We expect that strong operational execution as well as tight coordination with our retail partners to productively allocate supply will enable us to achieve record sales in the second quarter of this year and, given our strong share position, for the overall console headset market as well.”

Estimates Rising

The guide higher has forced analysts to take their estimates higher and in a big way. Over the last 30 days, estimates have gone from negative $0.29 to positive $0.29, meaning the company will go from losing to making money. For the current year, estimates have gone from $0.01 to $0.56 over the same time period.

While the increased demand likely won’t continue forever, the demand from the lockdowns is helping current sales. Consumers are planting themselves in front of the computer and they want top quality headphones.

The Technical Take

The stock is above all moving averages, with the 200-day at $9.40 and the 50-day at $12.35. Momentum investors should keep an eye on the 21-day at $15 as a possible spot to buy into as the stock holds its trend.

The Fibonacci setup, drawn from 2019 highs to recent lows, gives us a 61.8% break and targets above. Longer-term levels to look out for are the $28 level (161.8%), $34.5 (all-time highs) and $43 (261.8%).

In Summary

The COVID stocks remain hot. Turtle Beach is only now getting going and it is one of the only lockdown stocks that hasn’t run to previous highs yet. While this can be a bad signal, the company is still little known and that run in 2018 was way overdone. With 20% of the float short, watch for the squeeze to continue if the company can keep the sales momentum going.

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