Is ZAGG on the Up-and-Up?

There doesn't appear to be a shortage of naysayers when it comes to gadgetry accessories specialist ZAGG (Nasdaq: ZAGG  ) .

The company behind the patented invisibleSHIELD protective screen coverings for smartphones and tablets was the target of a Citron bearish report this past summer.

"Management's track record is laced with blatant self-dealing, execution failures, and disclosure omissions," conclude the often astute worrywarts at Citron.

The skepticism hasn't diminished over the months that have followed.

There were a whopping 8.3 million shares sold short as of mid-January, and that's a huge number when you consider that there are just 29.6 million shares outstanding.

ZAGG's history of flops outside of the invisibleSHIELD cash cow, accounting hiccups, and cash flow woes has made the accessories provider an easy target for the critics. I awakened one of the more vocal ZAGG worrywarts when I singled out the stock as one of five stocks under $10 worth buying on Monday.

I've been writing that monthly column for 11 years, and naturally there will be plenty of disagreements. A stock isn't trading in the single digits because it's a Wall Street darling. After three years of rallying markets, good luck finding growing and profitable companies that are still trading below $10.

However, Stone Street Advisors came off a bit more incensed than those who typically disagree with my opinion.

It could be that the stock moved higher that day: Stone Street Advisors reflected on the stock's 5% pop on Monday, claiming, "much of which is probably due to a bullish mention from The Motley Fool."

I disagree.

ZAGG also issued a press release that morning, revealing that AT&T (NYSE: T  ) would be stocking two more of its products: the ZAGGkeys FLEX -- a stand-alone keyboard that works with both Apple (Nasdaq: AAPL  ) and Android devices -- and the ZAGGsparq battery charger.

For a company that has been criticized for relying too much on Best Buy (NYSE: BBY  ) for its sales -- even though that customer has gone from accounting for 42% of sales to 28% of sales over the past year -- broadening its relationship with Ma Bell is certainly welcome news.

Back to the diss: I began to wonder if I should have been more critical of ZAGG. Management has given bears plenty of ammo over the years. However, it does lead me to wonder if balance is truly possible.

I've read plenty of bearish pieces on ZAGG over the past two years, and they don't seem to point out the company's breakneck revenue growth or its booming profitability. Stone Street Advisors argues that the company is not one that can be trusted, yet here it is after having raised its top-line guidance for 2011 three times since this past summer. If you think it's hype, we'll know soon enough.

Apple certainly helped ZAGG's cause this week, announcing that it sold 37 million iPhones and 15.4 million iPads during its holiday quarter. Regardless of the competitive nature of the accessories market or the cash crunch that bears see in ZAGG itself, there isn't a way to spin that news as a negative for ZAGG in the near term.

However, I'm all for a more open discourse on the company's bullish and bearish points. If you feel strongly one way or another, the comments box below is all yours.

A new special report singles out three winners in the iPhone, iPad, and Android revolution. ZAGG isn't one of them. The report is free, but it won't be around forever, so check it out now.

The Motley Fool owns shares of Apple and Best Buy. Motley Fool newsletter services have recommended buying shares of Apple. Motley Fool newsletter services have also recommended writing covered calls in Best Buy and creating a bull call spread position in Apple. 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.

Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.


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