If you’re under the age of 30, then the word “Fortnite” probably needs no introduction. For everyone else, let me explain. Fortnite is a video game, developed by privately-held Epic Games, that has become an overnight sensation—100 players battle to the “death” in an every-man-for-himself battle royal. At any given moment, 3.4 million people worldwide are playing the free-to-use game. And while Epic Games isn’t public, there’s an indirect way to invest in Fortnite: HEAR stock.
Turtle Beach Corporation (HEAR) stock, to be more specific. Turtle Beach makes headsets and headphones for gamers, and everyone who plays Fortnite needs a pair, since players from different parts of the globe face off against each other and communicate via headsets.
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What kind of effect has Fortnite’s popularity had on Turtle Beach’s business? Last year, Turtle Beach’s sales were down 14%. In the first quarter of this year, sales jumped 184% (second-quarter earnings results aren’t due out until August 6). For the year, analysts expect Turtle Beach’s sales to improve 38%, which would be by far the company’s biggest top-line increase since 2014.
When the company released first-quarter results in early May, HEAR stock immediately gapped up from 6 to 16. It’s been trending higher ever since, currently trading at 28. For the year, Turtle Beach stock is up 1,494%!
There’s plenty of risk with HEAR. It’s a (very) small-cap stock, with a market cap of less than $400 million. The company isn’t profitable, though that’s expected to change this year thanks to Fortnite. And despite the huge run-up this year, HEAR stock has still lost roughly two-thirds of its value since peaking at 84 in 2013. Shares got slammed in 2014 and 2015, and the slow burn continued all the way through late last year, when HEAR bottomed at 1.76 right around Christmas.
The stock was still moving relatively sideways until this spring, right before the booming Q1 earnings report.
Having said all that, there’s a lot to like about HEAR. This stock has recently been featured in Cabot Top Ten Trader. The stock chart looks great, profits are coming, and shares look reasonably priced, trading around 20 times forward earnings estimates. The company isn’t new—gamers have been using their headsets since the early versions of Madden Football games, and the company is by far the leader in its field. But Fortnite has given Turtle Beach a completely new shine. As long as global fervor for the game continues to spread, those who play it will keep buying up Turtle Beach headsets.
Who knows how long it will last. Like Pokemon Go and fidget spinners, it could be a short-lived phenomenon. But even if you don’t understand it, you might as well capitalize on the Fortnite craze until it fizzles. And right now, the best way to invest in Fortnite is HEAR. If you invest, just be sure to keep it small and build if the stock works in your favor, as HEAR is extremely volatile on a week-to-week basis.
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Investment analyst and Chief Analyst of Cabot Wealth Daily, Chris Preston brings you all the latest from the investing world. Sign up to get updates and breaking news delivered FREE to your inbox. Get unlimited access to our library of complimentary investing reports.Sign up now!