LeapFrog Leaps High and Why You Should Leap Too
Emmanuel is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
LeapFrog (NYSE: LF) leaped high this year by an astounding 27% year-to-date, and the upward trend continues thus far. LeapFrog is a leading manufacturer and developer of technology-based educational products.
Its products are primarily focused on providing a wholesome, engaging, entertaining, and highly efficient learning experience to users in school, at home, and across the globe. It is an eight-time recipient of the prestigious ‘Educational Toy of the Year’ award by the Toy Industry Association; the association has given 13 awards so far. All in all, LeapFrog has already amassed more than 1,200 awards.
During the first quarter of 2013, the company reported net sales up by 15% compared to the same period in 2012. This was driven by strong sales from both the U.S. and international segments, which were up 11% and 26%, respectively. While the company incurred losses, its net loss improved by 68%. It also reported a basic and diluted net loss of $0.04 per share, which was an improvement by 71% versus the year-ago quarter. Based on the latest quarter's performance, LeapFrog reiterated its guidance for the full year and estimated net income of $0.57-$0.60 per diluted share.
LeapFrog is a small-cap firm with market capitalization of $758.89 million. While the company has been struggling in terms of earnings, it is now improving, and this is shown by the rising confidence of many investors, reflected by its YTD growth. This optimism will be further supported by ongoing and future product launches.
This year’s growth in shares was triggered by numerous factors, including new product launches. On April 30, the company launched the LeapReader, a state-of-the-art writing and reading learning center designed for kids between 4-8 years old. The LeapReader was made available to major online retailers on June 12, and within two weeks the product supply was sold out.
On June 25, the company announced the launch of its highly-anticipated new generation LeapPad, the LeapPad Ultra. This is dubbed as the best tablet for children, which is now shock-proof. This gives the device a significant edge over the Apple's iPad.
After just a few weeks on the market, the LeapPad Ultra was recognized as the Top 2013 Holiday Toy by two major UK retailers. As of this writing, the market availability of the LeapPad Ultra is ongoing, and it is scheduled to be available at major retail locations starting in August, or toward the end of Fall in some countries. This is expected to be one of the major catalysts for growth for this company, and many believe that this will help sustain its current rally toward the end of the year, assuming sales figures are good.
Almost toe-to-toe with Monopoly
One of the closest peers of LeapFrog is Hasbro (NASDAQ: HAS), the maker of the popular board game, Monopoly. Hasbro is bigger than LeapFrog, with market capitalization at $5.9 billion. Hasbro is increasing revenue with year-over-year quarterly revenue growth of 2.3%. It is also earning with profit margin of 8.09%, while giving investors a return on equity of 23.21%.
On the trading floor, Hasbro leaped higher than LeapFrog with an imposing gain of 30.8% year-to-date. Forbes projected Hasbro to rise even further when it reports its second quarter earnings on July 22. This will also be supported by future product launches. The recent upswing of Hasbro was partly driven by numerous product launches. On July 3, the company granted a licensing agreement to Electronic Arts for the development of mobile versions of its popular games like Monopoly, Battleship, Scrabble, and Life, among others.
Faster than Hotwheels
Also a stiff competitor of LeapFrog is Mattel (NASDAQ: MAT), the famous manufacturer of Hotwheels, Matchbox, Barbie, and Disney toys. In terms of market capitalization, Mattel is the largest among the three, being a mega-cap firm with market capitalization of $14.58 billion. Mattel’s revenue is increasing, as shown by its 7.2% quarterly revenue growth year-over-year. Its profit margin is reasonable at 12.44%, while its ROE is 28.37%.
For this year, Mattel’s ride up is slower than LeapFrog's; shares gained only 20.5%. Nevertheless, this is still high and quite lucrative for investors. Unlike LeapFrog, Mattel is a dividend stock with a current yield of 3.34%. To maintain the momentum of its upward trend, Mattel is set to launch a series of interactive games, apps, and toys for the rest of the year.
The Bottom line
LeapPad Ultra is expected to make leaps and bounds for LeapFrog. Initial sales have already pushed shares up, and this is projected to continue for the rest of the year. This will be further aided by other product launches that include the LeapReader. While the LeapPad Ultra competes head-to-head with the ever-popular iPad, this product is different in many ways and it is well-positioned for a specific market with distinct advantages over the iPad.
LeapFrop shares gained a whopping 53% in 2012. This was mainly fueled by the LeapPad 2. For this year, there is a higher chance that last year’s performance will be replicated or even surpassed, especially with the LeapPad Ultra and the LeapReader already in the company's arsenal. Given the aforementioned growth catalysts, now is the best time to hop in to profit from the next leap.
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Emmanuel Floriann Magto has no position in any stocks mentioned. The Motley Fool recommends Apple, Hasbro, LeapFrog Enterprises, and Mattel. The Motley Fool owns shares of Apple, Hasbro, and LeapFrog Enterprises. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!