What happened

Shares of Nautilus (NLS) were down 12.1% at 10:12 a.m. EDT on Tuesday. The company released fiscal first-quarter earnings on Monday that beat revenue and earnings estimates, but it wasn't enough to please investors. After the stock soared in 2020, the stock is down 30% year to date, as investors brace for a slowdown following the pandemic. One analyst downgraded the stock to hold from buy, which probably fueled the sell-off even further. 

However, there were some silver linings in the report that show the company doing better than the stock performance would suggest.

NLS Chart

NLS data by YCharts

So what

Nautilus said it welcomed 40,000 new customers to its brands through its website, bringing the total new customer count to 380,000 over the past 15 months. It averaged about 100,000 before the pandemic. 

Revenue grew 62% year over year to $185 million, a record for the fiscal first quarter. Excluding results from Octane Fitness, which Nautilus sold last year, revenue grew 74%. 

Moreover, the direct sales segment grew 16%, which looks healthy given that it's typically Nautilus' lightest period of the year because many customers exercise outside in warmer weather. The retail segment also turned in solid results, setting a quarterly record in revenue.

A large gym room with rows of stationary exercise bikes.

Image source: Getty Images.

Now what

Despite those strong results, the market doesn't like growth stocks that post decelerating growth. The stock rocketed higher a year ago as sales growth accelerated to 152% in the September-ending quarter in 2020, but that will make for a very difficult comparison when the company reports next quarter's earnings.

Management expects direct sales to be lower in fiscal Q2. Total revenue is expected to be between $145 million to $155 million, representing a two-year compounded growth rate of 53% to 59%, but roughly flat compared with the year-ago quarter's $155 million in revenue. 

Nautilus is serving a promising market opportunity, as more consumers adopt convenient at-home workout options. This trend accelerated during the pandemic, but until the company gets through the tough year-over-year growth comparisons, the stock price might remain volatile, so investors should be cautious.

Looking further ahead, management is targeting revenue of $1 billion -- compared with $664 million on a trailing 12-month basis -- and 2 million digital members by the end of fiscal 2026.