If you simply looked at the -20% drop in shares of
this morning, you'd think that the educational toy maker had lost
its way. Yes, the company's quarterly sales and profit results
trailed forecasts, but they still represented a sharp improvement
from year-ago results. Considering many investors had written this
company off as a goner just 18 months ago when sales were in
freefall and operating losses were seemingly open-ended, +42%
year-over-year sales growth in the first quarter has to be
considered a victory.
Of course, some of the shareholder base exiting the stock this
morning jumped in when Leapfrog posted scorching results last
quarter, which is the company's seasonally most important period.
But make no mistake, management has helped fuel a remarkable
turnaround by maintaining investments in R&D that are now
paying off. Rivals such as
have had a number of years now to try and dethrone Leapfrog and its
various "edutaining" platforms (the nexus of entertainment and
education). Now that Leapfrog looks healthier - and not likely to
be quashed by competitors-investors have a chance to buy into a
name that appears poised for respectable 15% to 20% sales growth,
and more robust profit growth.
Leapfrog remains on track to boost per-share profits back toward
the $0.50 mark by next year, and once management outlines the
roadmap for future R&D plans (as they often do each summer),
then shares may rise toward a 20 times multiple on projected 2011
profits, or $10 a share. That's some 80% ahead of today's lower
trading price. (Notably, analysts at Needham & Co. just raised
their 2011 profit forecasts above that $0.50 consensus, to
Alvarion (Nasdaq: ALVR)
are abandoning ship. The Tel Aviv-based company has held so much
promise, but another weak quarter has led some to question whether
the company can ever build a head of steam. Alvarion makes WiMax
equipment, which is used to deliver high-speed internet access -
just like with WiFi, but over entire regions. Around the globe,
WiMax has garnered a great deal of buzz, with backing from firms
Intel (Nasdaq: INTC)
Google (Nasdaq: GOOG)
. Here at home,
Clearwire (Nasdaq: CLWR)
is betting its entire business plan on WiMax.
But WiMax has company. A technology called LTE (Long-Term
Evolution) is gaining increasing favor with incumbent wireless
service providers, though WiMax has a 12-18 month head start on
deployments. But that head start isn't boosting Alvarion, which
actually saw sales decline sequentially in the most recent quarter.
Shares are off roughly -15% this morning, continuing a slide that
began three weeks ago.
Value investors may be tempted to bottom-fish, as the company's
$103 million cash stash is almost half of the company's value. But
there's no hurry. Shares are likely to mark time for at least
another quarter as management cuts staff and re-positions the
company's marketing efforts. That said, Alvarion has long been the
subject of buyout rumors, so anything can happen.
Many firms have the bad luck to report fairly impressive quarterly
results on a day when the markets are down sharply. These stocks
are feeling gravity's pull. Yet these weak trading days are a great
source of ideas for new investments that have been oversold in a
market downdraft. Companies that are reporting decent results, yet
are seeing their shares fall by more than 5% include
Domino's Pizza (
Westlake Chemical (
-- David Sterman
Disclosure: David Sterman does not own shares of any security
mentioned in this article.
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