Nautilus Raised to Outperform at Imperial Capital

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Nautilus: Primed For Growth In The Second Half

Nautilus stockIt’s always nice to find a stock that looks undervalued and then another analyst publishes a report that agrees with your view. That’s what happened this morning when Imperial Capital raised Nautilus to outperform with a $20 price target up from $16. My price target is $21.

I also recently noticed that Nautilus is showing up on the Magic Formula Investing stock screener for companies with a market cap of at least $500 million. I must admit I haven’t read “The Little Book that Beats the Market” which explains the Magic Formula Investing process. I’ll put it on my to-do list. I just know in the past some of the stocks I have found on my own have also shown up on his stock screen which means we are likely including some of the same metrics. Mine are revenue growth, profitability, and attractive relative valuation multiples such as P/E and EV/EBITDA. A growing company with attractive valuation is what I’m looking for.

Nautilus Expects Weak 1st Quarter

Nautilus share price fell over 16% following their 4th quarter earnings announcement in February. Although they missed EPS estimates by $.04, the market was focused on management’s guidance for 2017.

Management described this year’s growth expectation as “moderate” as opposed to the recent trend of double-digit growth. This year’s guidance is for revenue and operating growth in the 5-6% range. The first quarter is expected to be the most challenging due to strong comps from 2016.

The first quarter of 2017 is anticipated to be our most challenging quarter of the year, given an extremely difficult
comps from the first quarter of last year. – Bruce M. Cazenave, Nautilus CEO

Source:  Nautilus 4th Quarter Earnings Call

Nautilus Valuation is Still Attractive

There aren’t many companies with a 5 year compound annual growth rate over 10% trading at a P/E below 15x.

In fact, if we narrow it down to companies in the Russell 2000 with 1 yr and 5 yr revenue growth rates of at least 10% and the P/E below 15x there are only 29 companies with that kind of growth and multiple. If you prefer EV/EBITDA rather than P/E, Nautilus is trading at a 9.13x multiple on that measure.

Yet the stock is down 10.95% YTD which means there is still an opportunity to get in while the price multiples remain subdued.