What happened

Shares of home fitness company Nautilus (NYSE:NLS) 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

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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.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.