Digital audio specialist Turtle Beach (NASDAQ:HEAR) has seen its share prices rise tenfold over the last six months. Investors can thank the recent phenomenon of so-called "battle royale" games, where a good headset can make the difference between winning and losing. As a leader in the market for mic-equipped headsets for computers and video game consoles, Turtle Beach has had nothing but good news in the rise of titles like Fortnite and PlayerUnknown's Battlegrounds (PUBG).

Sadly, this trend is almost certainly a short-lived fad. When battle royale games start to slide out of the global spotlight they're enjoying right now, Turtle Beach's business is sure to follow suit. It's a long way down from here.

Video gamer wearing a headset and holding a controller pad

Image source: Getty Images.

How important are these games?

Turtle Beach works in a highly seasonal industry dominated by holiday gifts. In 2017, the fourth quarter accounted for 70% of the company's annual sales, and was the only reporting period that showed positive bottom-line earnings.

The battle royale craze is throwing all of those seasonal patterns out the window. The first quarter of 2018 saw sales nearly tripling compared to the year-ago period. From the holiday-themed fourth quarter of 2015 to the first quarter of 2016, revenues dropped by 72%. A year later, the same seasonal drop grew to 83%. This time, it stopped at just 49%.

On the bottom line, Turtle Beach's first-quarter earnings swung from a $0.80 loss per share to a $0.16 profit per share.

That's the magnitude of the Fortnite and PUBG trend. Keep in mind that Turtle Beach doesn't make these games, bundle its headphones with copies of Fortnite, or otherwise benefit directly from this particular gaming phenomenon. Gamers can pick up headphones from dozens of competing brands. For a more direct bet on the leading battle royale games, Chinese online titan Tencent (NASDAQOTH:TCEHY) owns a 5% stake of PUBG publisher Bluehole and 40% of Fortnite creator Epic Games.

Still, being a veteran of the headphone market with decent street cred was enough to trigger a game-changing financial windfall for the company.

Risks, risks, risks

It's true that some gaming platforms and game styles stick around for ages. First-person shooters never really go out of style, for example. Football and basketball titles can churn out new titles every year, usually changing very little other than the performance statistics for real-world players. Nintendo (NASDAQOTH:NTDOY) might not enjoy much buzz around Pokemon Go anymore, but the day this company can't turn a profit from a new Mario or Zelda title is the day video gaming dies.

I'll admit that battle royale games stand a slim chance of making it into those immortal echelons. Very slim.

Gaming publishers are always looking for the next big thing. The odds of scoring a huge hit are vanishingly small, even for a short-term victory. Consider the case of Zynga (NASDAQ:ZNGA), the social gaming veteran that struck gold with FarmVille and Words With Friends once upon a time. The company went public at the very height of that adrenaline rush. If you bought in at Zynga's peak share prices in the spring of 2012, you've weathered a 70% cut to your investment's value so far. Like I said, it's a long way down from the top.

Turtle Beach could survive a plunge like that, leaning on several decades' worth of experience with good times and bad times in the PC gaming industry. But the company is sitting on just $4 million in cash equivalents and $33 million of short-term and long-term debt. Turtle Beach hasn't turned an annual net profit at any point in the last ten years, and free cash flow has been reliably negative as well.

But let's say that battle royale games really are here to stay. What happens when the addressable market has stocked up on all the high-quality headsets that gamers need? I'm not sure that the company has a Plan B for that sad coda, where a huge burst of initial purchases is replaced by a slow trickle of upgrades and replacements. This is arguably not the kind of hardware you can gain a big advantage from upgrading, unlike graphics cards or better controllers.

Take cover!

I would recommend staying far, far away from Turtle Beach's stock until Fortnite and PUBG can turn this fad into a lasting legacy. The downside risk is far greater than the chances of scoring big gains for the long term.