Bear of the Day: Turtle Beach Corporation (HEAR)

Turtle Beach (NASDAQ:HEAR) Corporation HEAR and its various brands make accessories for video games, including headsets. Gaming is an overall growth market, but Turtle Beach and many other industry players are subject to the larger boom and bust cycles that coincide with the launch of big blockbuster games.

Turtle Beach stock has also gone on a massive up and down roller-coaster ride over the past five years and it’s been trending in the wrong direction recently.

Turtle Beach Basics

Turtle Beach sells higher-end headsets for “all levels of gamer” and it has been a market leader in the console gaming audio space for the past 10 years. The company’s ROCCAT brand makes gaming-focused mice, keyboards, and headsets. Meanwhile, its Neat Microphones brand sells high-quality USB and analog microphones for gamers, streamers, and professionals, which is becoming more popular in the remote work world.

Turtle Beach revenue skyrocketed 54% in 2020 as the world focused on at-home activities. But this jump came up against an 18% drop in 2019 sales. Over the past seven years, every time Turtle Beach posted YoY revenue expansion it was followed up by a decline.

That said, Zacks estimates call for its revenue to climb 1.4% this year and another 5.6% in FY22. Despite the expected top-line expansion, Turtle Beach’s adjusted earnings are projected to fall by 44% this year and dip another 4.5% next year.

Turtle Beach updated Wall Street with its preliminary full year 2021 results on January 5, with its revenue now expected to come in at the low-end of its previous outlook. The company is also attempting to navigate a difficult industry environment.

“We have undertaken significant proactive work to deliver results in line with our guidance in an environment that has recently presented industrywide challenges like weak retail traffic, constrained console supplies and poor performing AAA game launches,” CEO Juergen Stark said in prepared remarks.

Image Source: Zacks Investment Research

Bottom Line

Turtle Beach’s consensus earnings estimates have trended heavily in the wrong direction since its Q3 report. And its Most Accurate (the most recent) EPS estimates are even lower. HEAR’s downward EPS revisions momentum helps it land a Zacks Rank #5 (Strong Sell) right now.

Turtle Beach also lands “F” grades for Growth and Momentum in our Style Scores system right now. Plus, its industry is in the bottom 25% of over 250 Zacks industries.

HEAR shares could bounce back, as they reach some overdone technical levels, with Turtle beach down 45% since mid-June. That said, the stock is somewhat heavily shorted and it might be more of a trader’s stock.

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