Nautilus (NLS), Extreme Value Opportunity

Nautilus established in 1986 is a consumer fitness products company. Business activities cover designing, developing, sourcing and marketing cardio, strength, and accessories. Equipment sold in the U.S.(88%), Canada(5%), and international(7%)under recognized brands. Nautilus ®, Bowflex ®, Octane Fitness ®, Schwinn ®, and Universal ®.

The direct business offers products to consumers via television, internet, and catalogs. The retail store sells through a network of independent companies. Further, revenue realized from licensing brands and intellectual property.

Nautilus long-term strategy is marketing to consumers and retail customers by leveraging existing brands. Improve product lines by using engineering to reduce production costs. Continue investment in research activities directed at acquiring or building new technologies. Increase international retail sales. And, maximize royalty revenues from licensing intellectual property.

Product listing below is taken directly from the 10k.

Nautilus ® is corporate umbrella brand and is also used to differentiate certain specialized cardio, treadmills, ellipticals and bike products.

Universal ® brand, one of the oldest and most recognized names in the fitness industry, currently offers a line of weight benches.
Source 10K

Opportunities:

New CEO reported last week is a tested digital innovator. His digital strength can prove critical to a significantly higher NLS valuation. New entrant Peloton exercise bike grew into a 4.15 billion enterprise with streaming online subscription workouts after just five years. Peloton valued at $4.15 billion after its latest funding round of $550 million in August 2018 confirmed to CNBC Make it. Peloton projects $700 million in revenue for the fiscal year ending in February versus $370 million prior years. A potential Peloton IPO could arrive this year. But, Peleton declined to comment on the IPO to CNBC Make It.. Peloton IPO provides visibility for the extreme unsustainable valuation discount on NLS. Further,a digital platform is now offered on several Nautilus products. 

The investment story is simple. It has an extreme low historical and relative valuation. No investing advantage from including graphs or statistics on the industry’s favorable trends for consumers, growing obesity, disposable income, or forecasted potential competition. These add little or no value to the investment buying decision process. It’s all about the price.

Deep valuation discount

Risks:

Alternative fitness choices may negatively impact future growth. For example, budget gyms such as Planet Fitness and new competitor, Peleton.


The present financial position and flexibility materially reduced after several negative quarters of declining revenue and margins. But even with the double-digit decline in YOY revenue comparisons inventory ended up significantly. Inventory to revenue is up 30% from 2015 to the TTM. Negative results attributed to a failed marketing campaign. Management blames the inventory issue on failed advertising resulting in low awareness and insufficient communication of the platform’s digital capabilities.

Summary/Catalyst

Mean reverting valuation trading for a 28.30M enterprise value with TTM revenue of 366.34M, gross profit of 158.71M, and retained earnings of 174.50M. New CEO leverages his digital experience to offer subscription-based exercise programs. Subscriptions made a name for Peleton and their expected 4.1B IPO.

A Peleton IPO will favorably impact NLS’s valuation. Nautilus has valuable patents and world recognized brand names where the parts are greater than the current market value.
Nautilus ®, Bowflex ®, Octane Fitness ®, Schwinn ®, and Universal ®.

Long: NLS