Has Nautilus Become A 98-Pound Weakling?

| About: Nautilus, Inc. (NLS)

The Samson that was Nautilus (NYSE:NLS) has taken a haircut. The company's stock hit almost $30 last summer, but since then it has been sliced almost in half to just under $17. The company has had legal problems with the way it marketed it Bowflex line and the matter is still in the federal courts. The company was late in introducing a few products in Q4 2005, and earnings suffered. Nautilus then reported two material weaknesses in its internal controls and made adjustments to 2005 numbers.

In Q4 05, sales rose slightly to $181 million, but net income was pinched from $14.1 million in Q4 04 to $2 million 2005. The company blamed late product introductions and said that it was correcting the problem, but guidance for Q1 06 was only $180 to $185 million. So, maybe it won't be fixed that soon.

Nautilus claims in its 10-K that the fitness industry has doubled in size since 1990. And, the company has some strong brands including Bowflex, Schwinn, StairMaster, and Nautilus. Revenue growth since 2001 has been white hot with the top line almost doubling.

But, can Nautilus keep it up?

If investors are willing to take management at its word much of the legal, financial and operational issues of product launches are behind the company. If so, the stock has not been this low more than once in nearly two years. The fitness market is still growing, and the management at Nautilus has their credibility, and maybe their jobs riding on their promise that things have been fixed, and it should show in the numbers as 2006 passes. With a lot on the line, the stock could rebound.

NLS 1-yr Chart

Douglas A. McIntyre was the Editor-in-Chief and Publisher of Financial World Magazine. He was also president of Switchboard.com when it was the 10th most visited site on the internet, according to MediaMetrix. He has been chief executive officer of FutureSource, LLC and On2 Technologies, Inc. and has served on the boards of TheStreet.com and Edgar Online. He does not own securities in companies he writes about. McIntyre can be reached at douglasamcintyre@gmail.com.

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