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Nautilus Stock Trades Higher After Research Firm Points to Zoom-Like Growth

By Jon Quast – Sep 9, 2020 at 5:13PM

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If sales are really growing 400%, could this stock easily double?

What happened

Shares of home fitness company Nautilus (NLS -3.35%) traded 8% higher on Wednesday, after research firm Citron Research said the company was "the fastest growing name" besides Zoom Video Communications. Given the firm's prominence and Zoom's parabolic growth in 2020, that statement caught investors' eyes.

To be clear, Nautilus stock was already rising before Citron said anything. Shares are up around 750% since the start of 2020.

NLS Chart

NLS data by YCharts

So what

In the report, Citron cites proprietary credit card data showing Nautilus' sales have surged nearly 400% during the ongoing third quarter. The reason is the at-home fitness trend, but also that Peloton's products are on backorder. Nautilus, which makes Bowflex and other equipment, is there to fill the gap. 

Besides this incredible sales growth speculation, the valuation of Nautilus stock comes into play. For example, Peloton stock trades at around 18 times trailing sales. That's pricey even for a growth stock, but some investors say it's worth paying for a company growing sales as Peloton is.

By contrast, Nautilus trades at a mere 1.2 times trailing sales. However, 400% growth would dwarf any growth posted by Peloton, suggesting Nautilus stock is severely undervalued.

Citron believes Nautilus is worth $30 per share in a worst-case scenario -- more than double its current price.

A woman whispers to a man who looks surprised.

Image source: Getty Images.

Now what

While all of this sounds fantastic, investors should still exercise prudence. Citron Research, after all, doesn't have a flawless record. Earlier this year, it also submitted proprietary credit card data showing 700% year-over-year growth in spending for Sonos. However, the company's revenue declined 4% for the quarter, and it's only guiding for 1% growth in the coming quarter -- a far cry from the elevated speculation.

I don't mean to discredit anyone -- to the contrary, Citron Research is often right. I value a variety of opinions and inputs, and believe all investors should too. The call is simply for investors to be cautious, not head-over-heels bullish, from a single report.

When Nautilus reported earnings for the second quarter of 2020, it showed 94% year-over-year growth in net sales. So the growth was there, but management cautiously refrained from giving guidance. Investors would do well to reflect this attitude.

Jon Quast has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Peloton Interactive, Sonos Inc, and Zoom Video Communications. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Nautilus, Inc. Stock Quote
Nautilus, Inc.
$1.73 (-3.35%) $0.06
Sonos Stock Quote
$14.14 (-1.53%) $0.22
Zoom Video Communications Stock Quote
Zoom Video Communications
$74.45 (-0.12%) $0.09
Peloton Interactive, Inc. Stock Quote
Peloton Interactive, Inc.
$8.51 (-0.93%) $0.08

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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