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Why Nautilus (NLS) Stock is a Compelling Investment Case

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Greenhaven Road Capital recently released its Q3 2020 Investor Letter, a copy of which you can download here. Greenhaven’s estimated returns for the third quarter totaled approximately +50% net of fees and expenses. August was the best month in the partnership history. The net result is that both funds are up around 55% for the year, comparing favorably to the Russell 2000, which ended September down -8.7% year to date. You should check out Greenhaven Road Capital's top 5 stock picks for investors to buy right now, which could be the biggest winners of this year.

In the said letter, Greenhaven Road Capital highlighted a few stocks and Nautilus Inc. (NYSE:NLS) is one of them. Nautilus Inc. (NYSE:NLS) is a consumer fitness products company. Year-to-date, Nautilus Inc. (NYSE:NLS) stock gained 1,339% and on November 4th it had a closing price of $25.18. Here is what Greenhaven Road Capital said:

"While our COVID-related investment in Barnes & Noble Education is predicated on life eventually returning to normal, our investment in Nautilus is predicated on the thesis that some aspects of life will remain changed, including a shift from formal gyms and studios to home gyms. Nautilus manufactures quality fitness equipment and has a strong direct-toconsumer business as well as extensive retail distribution, operating under the Bowflex, Schwinn, Nautilus, and Universal brands. As a rule of thumb, hardware is a bad business, and this adequately describes the historical Nautilus business. What is interesting about Nautilus is that they are increasingly adding subscription revenue streams to their crappy hardware business, which makes it a much more interesting proposition. On a recent call the CEO said:

“In 2018, we had maybe 3% of our products were ‘connectable’ in connected fitness scenarios. We took that number significantly higher with our launches in 2019, and we'll take that number still higher, do a vast majority of all of our products available this year, so that we'll continue to really grow that installed base. And as that installed base becomes more meaningful, then the subscription business does as well, and we'll begin to report on numbers at that point.”

We acquired our shares at a little more than 1X revenue and a sub-$500M market capitalization. The maker of Nordic Trak recently secured an investment at 7X revenue and Zwift, a startup that hosts virtual-reality cycle races, raised $450 million last month. Nautilus is unlikely to ever get a Peloton, Nordic Track, or Zwift valuation multiple, but they did grow revenue 94% year over year, have very good distribution, a record backlog, and a growing installed base. This could very well be profitable to own over the medium term."

Most Expensive Gyms in America
Most Expensive Gyms in America

Marko Poplasen/Shutterstock.com

In Q1 2020, the number of bullish hedge fund positions on Nautilus Inc. (NYSE:NLS) stock increased by about 11% from the previous quarter (see the chart here), so a number of other hedge fund managers believe in Nautilus' growth potential. Our calculations showed that Nautilus Inc. (NYSE:NLS) isn't ranked among the 30 most popular stocks among hedge funds.

The top 10 stocks among hedge funds returned 185% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 109 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds' poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

Video: Top 5 Stocks Among Hedge Funds

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website:

Disclosure: None. This article is originally published at Insider Monkey.