Shares of Nautilus Inc. (NLS) hit a 52-week high on Jan 23, shortly after this provider of consumer fitness products announced strong preliminary results for the fourth quarter of 2012. Nautilus outperformed the Zacks Consensus Estimate in the last three quarters with an average surprise of 200%. The Zacks Rank #1 (Strong Buy) stock also returned investors a handsome 170.3% over the last 52 weeks.
Promising Fourth Quarter Prelim Results
On Jan 16, 2013, Nautilus announced preliminary fourth-quarter net sales of approximately $65.0 million, up 8.4% year over year. As a result, earnings per share are expected between 21 cents and 23 cents, versus 11 cents a year ago.
For the full-year 2012, preliminary net sales grew 7.5% to $194.0 million, while earnings per share are anticipated between 32 cents and 34 cents, substantially up from 8 cents in the prior year.
Solid Third Quarter Beat
Nautilus' third-quarter adjusted earnings of 4 cents per share breezed past the Zacks Consensus Estimate by 500.0% and the year-ago results by 300.0%. The company's net sales inched up 1.7% to $38.1 million. In particular, the Direct segment experienced solid revenue growth of 10.9%, thanks to increased demand for Nautilus's cardio products.
Gross margin in the quarter improved 650 basis points to 48.7%, buoyed by sales of higher margin Direct Channel products. Operating margin also improved 370 basis points to 1.8%, driven by efficient management of overheads.
Earnings Estimates Moving Up
The Zacks Consensus Estimate for 2012 has gained approximately 18.0% in the past 60 days to 33 cents, representing a year-over-year increase of 312.5%. Meanwhile, the Zacks Consensus Estimate for 2013 moved up 10.5% to 42 cents, indicating a year-over-year improvement of 26.3%.
Valuation Stretched, Yet Lucrative
Though the stock of Nautilus is expensive by some valuation metrics like price to book value (P/B) and price to sales (P/S) compared to its peers, it looks attractive on a price/earnings (P/E) ratio and return on equity (:ROE) basis.
The stock's P/B basis is at 4.55x and its P/S is at 0.86x. Both figures are at a premium to the peer group averages. Given the company's compelling fundamentals, the premium valuation is justified.
However, Nautilus currently trades at a forward P/E ratio of 12.65x, in line with the peer group average. Moreover, it has a trailing 12-month ROE of 19.5%, which is significantly above the peer group average of (0.4%), suggesting efficient reinvestment of earnings compared to its peer group.
Shares of Nautilus have been rising since late-October 2012 and reached a new 52-week high of $5.43 on Jan 23, 2013. The stock is currently trading above its 50- and 200-day moving averages, which stand at $3.68 and $3.03, respectively.
Volume averages roughly 224K daily. The 52-week return for the stock is 170.26%, significantly ahead of the 13.5% return by the S&P 500 index.
With a brand portfolio that includes Nautilus, Bowflex, SchwinnFitness, StairMaster and Trimline, Nautilus manufactures and markets a complete line of health and fitness products through direct, commercial and retail channels primarily in the United States and Canada. The company is headquartered in Vancouver and Washington.
The market cap of the company is $161.3 million. Another stock from the same sector expected to perform strongly includes HSN Inc. (HSNI). Some other stocks from leisure and recreational products with a short-term bullish outlook are Sturm, Ruger & Co. Inc. (RGR) and Smith & Wesson Holding Corporation (SWHC). All three companies carry a Zacks Rank #1 (Strong Buy).
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