Turtle Beach (NASDAQ:HEAR), a technology company known for its popular gaming headphones, has had a rocky ride in the market in recent years. However, with strategic acquisitions and a broadening product range, the company’s stock has started to make some noise in the industry with promising long-term growth prospects. The company has recently expanded into related product categories, such as game controllers, and has seen a respectable year-to-date gain of around 25%.
Trading at a significant discount to industry peers, this little-known gem presents a value investment opportunity with impressive upside potential.
HEAR Is Expanding Its Footprint
Turtle Beach is a leading audio technology firm with a global presence in North America, Europe, the Middle East, and the Asia Pacific. The company specializes in developing and marketing gaming headset solutions for various platforms.
Under the Turtle Beach brand, Turtle Beach offers video games and entertainment consoles, handheld consoles, PCs, tablets, and mobile devices. Turtle Beach has also expanded its footprint into the PC peripherals market with gaming accessories under the ROCCAT brand.
The company has been experiencing robust demand for its products, particularly those in the pre-launch or launch phase. It plans numerous new product launches yearly, expanding across headsets and controllers. Further, Turtle Beach has focused on strategically managing its costs through initiatives like portfolio optimization, SKU rationalization, and product platforming. These cost management efforts are anticipated to yield full results by the end of 2024.
Recent Financial Results & Outlook
The first quarter of 2024 saw the net revenue climb to $55.8 million, beating analysts’ expectations of $53.22 million while marking an 8.6% increase from the $51.4 million reported in the same period a year prior. This growth mainly resulted from the recent acquisition of Performance Designed Products (PDP) and a spike in the demand for controller and simulation products. Meanwhile, the gross margin grew by 430 basis points due to a concentrated effort to slash product costs to facilitate margin expansion. GAAP EPS of $0.01 beats consensus expectations of -$0.22.
As of quarter-end, the company reported $17.8 million in cash and no outstanding revolver borrowings, compared to the previous year’s $20.6 million in cash and zero revolver borrowings. The firm acquired a $50 million term loan to purchase PDP. Cash flow from operations over the first quarter of 2024 was $27.3 million, a slight decrease from $29 million in the corresponding period of 2023.
Management has projected its net revenues for 2024 to range between $370 million and $380 million, primarily fueled by the acquisition of PDP and increased performance in specific gaming markets. For 2024, the combined adjusted EBITDA is estimated to fall between $51 million and $54 million. Additionally, the company reaffirms its long-term targets of a 10%+ revenue CAGR, a gross margin percentage in the mid-30s, and a mid-teens percentage for Adjusted EBITDA margins.
What Is the Price Target for HEAR Stock?
Analysts following the company have been bullish on the stock. For instance, Maxim Group analyst Jack Vander Aarde recently reiterated a Buy rating on the stock with a $24.00 price target, noting the company’s impressive first-quarter performance and strategic acquisition, which is anticipated to be highly beneficial and provide immediate scale.
Turtle Beach is rated a Strong Buy overall based on five analysts’ recommendations and recently issued price targets. The average price target for HEAR stock is $22.20, representing a potential upside of 61.45% from current levels.
The stock has been highly volatile, with a beta of 1.79, trending downward over the past three years until experiencing a significant jump in post-Q1 earnings. It now trades toward the middle of the 52-week price range of $7.97 – $18.45 and looks to be relatively undervalued, with a P/S ratio of 0.93x compared to the Consumer Electronics industry average of 4.96x.
Final Thoughts on Turtle Beach
Turtle Beach has shown promising growth potential through strategic acquisitions and product diversification. The recent acquisition of Performance Designed Products (PDP) has helped boost Q1 2024 revenue to surpass analysts’ expectations, while its gross margin grew significantly due to effective cost-cutting measures. The company’s stock, currently trading at a significant discount, offers a compelling value investment prospect with substantial upside potential.
