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Turtle Beach Corporation

|Includes: Turtle Beach Corporation (HEAR)

Strong underlying economics with track record of great ROA.

Sensible purchase price at 6.57x Free Cash Flow.

Competitive advantage earned from superior products that consumers love.


Turtle Beach Corporation (NASDAQ: HEAR) is a leading designer and manufacturer of video game headsets for Xbox, Playstation, and PC. This investment offers exposure to the rapidly-growing ESports industry with a strong top-line growth outlook, yet the company trades only at 6.57x Free Cash Flow. Its management is effectively employing its assets to generate returns with an ROA of 42.70%. Its underlying economics are strong, given that video games are likely to grow in popularity, especially competitive ESports, where headsets are crucial to effective game-play. It sources its competitive advantage from its well-recognized brand, trusted product quality, and continuous re-investment into new product offerings.

What can kill the company?

Turtle Beach is reasonably leveraged with a 1.29x D/E Ratio, but maintains a strong interest coverage of 15.11x. The company still reports a retained deficit of $147 million after losing money for several years before generating positive net income in the quarter ended Sep. 30, 2018. It's success going forward is dependent on its ability to incrementally grow its income and reduce its retained deficit.

Why should I own this company?

Turtle Beach is a company with strong underlying economics and a track record of generating a good return on its capital assets. It currently trades at a sensible purchase price that offers a good margin of safety and good outperformance potential for our value-oriented investing strategy. We are long Turtle Beach.

Disclosure: I am/we are long HEAR.