Nautilus (NYSE: NLS) is a fitness solutions company. It designs and markets cardio and strength training products. Treadmills, ellipticals, stationary bikes and weightlifting equipment are sold under the Nautilus Bowflex, Schwinn and Universal brand names. And offers a digital fitness platform, JRNY. My interest in buying NLS is quantitative. I will not speculate on supply chain, inflation, competition or online strategy. Or how Peloton is (PTON) the run-down in price affects NLS stock returns in the short term.
The market values Nautilus for distress/bankruptcy at $3.02 or a market cap of 98.432 million. But NLS has a margin of safety with its prized brand names Nautilus, Schwinn and Universal. In addition, per share values of 4.09 for inventory, 3.25 for receivables, 5.64 retained earnings, 6.61 gross profit, 21.17 revenue and 5.78 equity. The NCAV is 2.38. And asymmetric returns if the line strategy proves marginally successful. The 52-week price change is -82%, a three-year return of -41%, and no change in outstanding shares from 12/2015 to MRQ.
The tangible book value of TTM per share is 4.70. An increase of 152.19% compared to the average value of 1.86 from 2015 to 12/2020. The values of gross profit, revenue and EBIT per share increased by 2.79%, 64.13% and 60.34% respectively, compared to the average values from 12/2015 to 12/2020. The change in the share price over the same period fell by -76.65%!
The valuation ratios highlight the extremely oversold situation. For example, P/TB is 90.78% lower at 0.67 compared to the average value of 7.27 from 12/2015 to 12/2020. Similarly, the P/S is 85.17% lower at 0.15 compared to the average value of 1.01 from 12/2015 to 12/2020.
The table below shows Nautilus’ current updated valuation metrics versus historical results. Comments on the last ten years.
The chart below shows the disconnect between value creation and price decline and additional comparisons with Peloton and NAISC (339920) Sporting and Athletics Goods Manufacturing.
Changes in book value and retained earnings per share relative to price over the same period show the creation of value relative to the decline in share price. Price to sales, price to book value, and business value to gross profit are also extreme relative to the PTON and NAISC 339920.
Nautilus sells commodities with growing competition. Equally important, management is pursuing a costly and loss-making online strategy. The strategy has a high probability of failing. In March 2021, Nautilus acquired VAY motion technology to expand its profitable and insecure JRNY digital platform.
Management expects negative operating results through 2023. In addition, the growing inventory balance may indicate deeper issues. Additionally, input cost inflation with steel, memory chip shortages and the supply chain are weighing on their future. Nautilus uses Chinese contractors and will face the uncertain impact of shutdowns and geopolitical risks. The larger Peloton is going all-in in its turnaround, coupled with Nautilus struggling to create an online presence with an inferior brand reputation to Peloton.
Nautilus is cheap on the balance sheet with a market price below liquidation value. Current assets, brands (Nautilus, Bowflex, Schwinn, Universal) and strength building leadership contribute to its estimated price below liquidation value. Moreover, the increase per share in book value and retained earnings does not reconcile with the dramatic decline in the share price. Additionally, if management executes, the stock price will see asymmetric gains aided by the short 10.5% float.
Activism and the sale of the business are possible. C suite is driven by generous compensation in RSU and PSU. “As of December 31, 2020, unrecognized compensation expense for outstanding but unvested stock-based awards was $7.2 million, which is expected to be recognized over a weighted average period of 0.3 to 1.8 years”. The equity incentive has increased since the 10K on 12/2020.
I recommend buying NLS for SPECULATIVE investors at current prices.
Editor’s note: The summary bullet points for this article were chosen by the Seeking Alpha editors.