Turtle Beach Stock: Potential Acquisition Could Add Upside Value (NASDAQ:HEAR) – Seeking Alpha

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Turtle Beach (NASDAQ:HEAR) is a fan-favorite gaming headset and accessory company based in San Diego. The company has posted strong fundamentals that indicates growth throughout many areas. 1Q22 earnings report coincided with the expectations for the company as net revenue and adjusted EBITDA stood higher than estimates. Donerail, an activist investment firm, has made multiple attempts to acquire the company, and has recently been given three seats on the board of directors. The firm has made three offers to purchase Turtle Beach to date, with each offer increasing the premium over the share price. With Donerail joining Turtle Beach’s board and pursuing acquisition of the company, a deal could be agreed on in the near future and bring great value to investors. This potential acquisition along with the stock being fairly undervalued solidifies my Buy rating to HEAR stock.

Growing Fundamentals Strengthen the Company’s Value

Turtle Beach has solid fundamentals which helps to solidify the company as the leading console gaming headset manufacturer. Revenue has seen huge growth as it has increased from $149.14 million to $366.35 million from FY17 to FY22. Gross profit has also seen a great increase of 51.00 million to 128.38 million over the past 5 fiscal years. EBIT has followed this income statement growth as it has rose from $4.8 million to $20.43 million over this span.

From FY17 to FY22, cash rose from $5.25 million to $37.72 million. The company’s current ratio is 2.47 which is mainly due to its $101 million in inventory. Turtle Beach has an impressively low debt of $8.5 million which will allow for the company to better survive a possible recession paired along with its growing cash. The company’s Net Debt/EBITDA ratio sits at -2.1 which is also reflective of the small amount of debt throughout the company. The company’s retained earnings is currently negative at -$57.05 million. However over the past 5 years, its retained earnings have been trending in the right direction as it has rose from -$170.05 million in FY17. This is because Turtle Beach is recently profitable and does not pay a dividend.

Over the past 5 fiscal years, the company’s cash from operating activities has decreased from $3.42 million to -$327,000. Capex has increased from $4.41 million to $5.62 million. The company is currently buying back a net of $56,000 worth of shares; however, the overall trend shows inconsistency as the company seems to be issuing more shares than retiring them.

First Quarter Earnings Indicate Company Is On Track With Expectations

Turtle Beach posted 1Q22 Earnings which were mostly in line with estimates for the quarter. CEO Juergen Stark attributed the solid quarter to its new innovative gaming accessories, steady lead in the console gaming headset market, and advancements in non-console headsets.

During the quarter we unveiled a variety of innovative new gaming accessories – including new additions to our best-selling Stealth wireless headset series, maintained our clear leadership position in the console gaming headset market, and continued our strong progress across non-console headset categories, all while executing in-line with expectations.

Net revenue outperformed expectations at $46.7 million, but was a huge drop from last year’s revenue of $93.1 million. Gross margin was 30.1% which was also much less than the 37.5% from the year-ago quarter. The drop in gross margin was associated with the rise in freight costs and fixed cost de-leveraging. Operating expenses were $22.3 million …….

Source: https://seekingalpha.com/article/4521097-turtle-beach-take-a-listen-to-this-value


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