Nautilus (NYSE: NLS) Stock an Overlooked Home Fitness Play

Home fitness equipment maker Nautilus NYSE: NLS shares have seen a resurgence during the COVID-19 pandemic as stay-at-home orders forced people to find ways to stay in shape. While the shares fell in conjunction with the (-34%) plunge in the S&P 500 index NYSEARCA: SPY during the pandemic sell-off in February 2020, they have surpassed the benchmark during the recovery into July 2020. This iconic innovator of fitness machines have been a key benefactor of the isolation mandates. Home gyms are rapidly becoming a part of the “new normal” of life with COVID-19. Risk tolerant investors that acknowledge the new reality may want to consider adding Nautilus shares on opportunistic pullback levels.

Q1 2020 Earnings Release

On April 8, 2020, Nautilus released Q1 2020 results for the quarter ending in March 31, 2020. The Company reported $2.3 million income or $0.08 earnings-per-share (EPS) versus loss of $8.5 million or (-$0.29) diluted-EPS. The Company saw its first positive comps since Q3 2018. Strong demand for cardio products specifically Bowflex, SelectTech weights and new connected-fitness bikes. Nautilus saw Q1 2020 net sales of $93.7 million up 11% year-over-year (YoY) on “accelerated demand” for home fitness resulting from stay-at-home orders in the last few weeks of March. Due to work-from-home, operating expenses decreased by 21.4% to $36.2 million compared to $46 million YoY. The demand surge in the last three weeks of the quarter has prompted management to raise its Q2 2020 guidance to $94 million versus $75.03 million consensus analyst estimates. Demand is outweighing supply as Company is “pulling all levers” to accelerate manufacturing capacity.

Danger of Spread Escalates in Gyms

The spread of airborne viruses like COVID-19 is especially dangerous in gyms. Aerobic and anaerobic exercises elevate breathing which further accelerates the propulsion of virus droplets not to mention sweat. The warm climate and circulation of air through fans and ventilation contribute to enabling COVID-19 to spread easily. Most gym-goers rarely take the courtesy to wipe down the equipment after usage which can further raise the odds of spread. Lifting heavy weights and working out with a face mask on is uncomfortable at best and suffocating at worst. The mandatory shutdowns have forced many gym chains to permanently close locations including 24-hour Fitness, Retro Fitness, and numerous smaller gyms and franchises. The worst fear of COVID-19 spread within gyms became a reality when 200 gym patrons were exposed at a Planet Fitness NASDAQ: PLNT in West Virginia on June 24, 2020. COVID-19 spread was discovered in five Southern California branches of the high-end Equinox Fitness Clubs.

Home Gyms Are Part of the New Normal

Why bother with that when you can get a workout at home without the restrictions? Ultimately at a much cheaper cost. During the shutdowns, most gyms froze charging monthly memberships and many consumers faced the reality that they don’t need to keep their memberships. Gyms make money from the reality that most members don’t fully access the gym regularly. The closing down of gyms under the isolation mandates further migrated more consumers to installing home gyms for workouts without the threat of spreading or catching the novel coronavirus. Even as states phase in restarts and re-openings of gyms, the fear of spread still remains especially in light of the alarming resurgence of infections seen through summer 2020. Nautilus is in a sticky sweet spot that will continue to accelerate demand as gym-goers opt to set-up at home. Shares of peer Peloton Fitness NASDAQ: PTON are also benefitting from the migration away from commercial gyms. On the speculation side, Nautilus itself may become an attractive acquisition play by a larger fitness player, especially in light of athleisure wear giant Lululemon Athletica NASDAQ: LULU announcing the acquisition of home fitness company Mirror on June 29, 2020.

Nautilus Price Trajectories

Using the rifle charts on monthly and weekly time frames provides a broader view of the landscape for NLS stock. The weekly market structure low (MSL) triggered above $2.92 as the bullish stochastic mini pup oscillation drove shares up to $9.98 Fibonacci (fib) level. The bar has been set high heading into Q2 2020 earnings due out August 2020. The upper monthly and weekly Bollinger Bands (BBs) target $12.52 and $11.58, respectively. Depending on the macro market climate and the resurgence of COVID-19 spread, shares may experience strong pullbacks before or after the earnings release. These potential opportunistic pullback levels are at $7.97 fib, $7.35 fib, $6.57 fib/monthly 5-period moving average (MA) and the $6.03 fib. Keep in mind this that shares are up nearly 300% from pre-COVID-19 levels, so be careful not to chase prices higher but rather wait for pullbacks.