If you have young children, you may be familiar with the
educational toy company,
LeapFrog Enterprises (
. The small-cap, California-based firm designs and develops
technology-based learning tools to help kids tackle reading and
As the mother of 17-month old little boy, I'd have to say his
LeapFrog toys are my favorite of the bunch. They're robust,
interactive and educational. But, best of all, they're fun -- even
LeapFrog's flagship educational product is the LeapPad2. This is
an interactive tablet, like the
Apple (Nasdaq: AAPL)
iPad, but designed specifically for kids, aged 3 to 9. It retails
for around $100. It lets kids play fun, educational games, run apps
and even take pictures.
In the United Kingdom, the LeapPad2 was the hottest selling toy
in December. Although it hasn't quite caught on as much in North
America, it's still very popular. In fact, during the holidays,
retailers, like Toys "R" Us and
Amazon.com (Nasdaq: AMZN)
only allowed customers to purchase two LeapPads at a time to keep
upinventory supply, due to such strong demand. And, with exciting,
new products expected to be released in April 2013, the outlook for
LeapFrog looks promising.
From a technical perspective, LeapFrogstock appears to be on the
verge of abullish breakout.
Surging from a low of $2.57 in August 2011, the stock formed
amajor uptrend line, hitting a multi-year high of $12.28 in late
July 2012. However, unable to sustain this momentum,shares began to
fall in August.
Leapfrog stock quickly dipped, tumbling first to around $8, and
then slipping further until finally finding support around $7 by
November. In the process, the major uptrend line was bearishly
broken and aminor downtrend line formed.
However, this December, on news of strong holiday sales,
LeapFrog stock jumped off $7 support and has been climbing ever
since. Shares currently appear to be on the verge of bullishly
breaking the minor downtrend line. Additionally, they're on the
cusp of bullishly breaking through resistance around $9.45.
If $9.45 resistance can be broken, Leapfrog could easily climb
back to its multi-year high of $12.28, presenting traders with 30%
The bullish technical outlook is supported by solid
fundamentals. Due to strong holiday sales of the LeapPad 2,
analysts project full-year 2012revenue will increase 22% to $557.8
million, compared with $455.1 million in 2011. For the
first-quarter of 2013, analysts expect continued demand for the
LeapPad2 will cause revenue to notch up 4.4%, to $75.2 million,
from $72 million in the comparable year-ago period.
Theearnings outlook is similarly upbeat. The company has beat
earnings expectations for the past seven consecutivequarters .
Analysts project strong product sales will push full-year 2012
earnings up 177%, to 83 cents per share, from 30 cents per share
In the first-quarter of 2013, earnings are expected to be two
cents a share better than last year at -12 cents, up from -14 cents
in the comparable year-ago quarter. Weakness following the holiday
shopping season is to be expected, and earnings will likely rebound
again with the company releasing new products in April.
In addition, LeapFrog has a strongbalance sheet with $49 million
incash and nolong-term debt . This liquidity should give the
company the financial freedom to continuing researching and
developing exciting new educational learning toys for children.
Risks to consider:
LeapFrog has a track record of continually wowing customers
with new devices. To stay competitive with the bigger toy
Hasboro (Nasdaq: HAS)
Mattel (Nasdaq: MAT)
, thissmall-cap stock will need to continue innovating, or could
face the possibility of a takeover from one of these larger firms.
However, LeapFrog is in a cash-rich position and has thefunds to
hire top creative minds that may help develop the world's next best
Action to Take -->
Buy Leapfrog on a break above $9.45 resistance. Set stop-loss at
$6.97, slightly below current support. Set initialprice target at
$12.28 for a potential 30% gain by mid-2013.
This article originally appeared on ProfitableTrading.com:
Under $10 Stock Setting Up for a Breakout to
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