1 Stock That Looks Wildly Expensive

The following video is part of our "Motley Fool Conversations" series, in which senior analyst Matt Argersinger and analyst Paul Chi discuss topics around the investing world.

With the market off to the races this year, hitting highs it hasn't reached since the weeks before its collapse in 2008, rich valuations are getting richer, and there are more and more to sort through. Is the market getting ahead of itself? In today's video, Matt and Paul discuss a stock that looks both pricey and primed for a future earnings disappointment that could send its shares tumbling. Find out the name Matt and Paul think could be headed sharply lower.

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Matthew Argersinger and Paul Chi have no positions in the stocks mentioned above. The Motley Fool owns shares of Apple. Motley Fool newsletter services recommend Apple. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.


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  • Report this Comment On March 04, 2012, at 2:35 PM, investingNideas wrote:

    Zacks upgrades Zagg 2 steps from hold to STRONG BUY! and Ford Equity Research upgraded Zagg to strong buy on 3/2/12 and here is why:

    Zagg Intellectual Property Holding has sued all other product manufactures on the market.

    via Durham Jones & Pinegar.

    LogiTech reported that Zagg products are it top selling brands and for ZAGG "its pure profit"

    So it like Microsoft and IBM for some products with ZAGG and LogiTech,

    HzO which ZAGG pulled in another 2 million of pure profit might start selling to OEM's this year. ZAGG gets 5 percent of those profits.

    The new ZAGG HD shield fixed a lot of issues of the older product of the last 5 years and reviews on youtube have never been better.

  • Report this Comment On March 05, 2012, at 12:38 AM, LatrinaCleanola wrote:

    I don't think the guys in this video are on the right track regarding ZAGG. They said basically three things:

    1. ZAGG sells commodity products that anyone can imitate and sell for a fraction of the cost. All of the negative articles say this, yet sales keep going up at an outrageous pace. If these points are valid and significant, how come ZAGG sales keep skyrocketing? These two young people don't seem to understand the importance of reseller channels--Zagg is in BestBuy, Walmart, etc., which new knock-off competitors won't be able to easily penetrate; do they have any idea how hard it is to get your product carried at one of these big retailers? And surprisingly enough, it's hard for someone to buy your product at Best Buy if Best Buy doesn't even carry the product. They also don't appreciate the value of branding--the ZAGG brand is perceived as the leader, so people are eager to buy their products. Another major ZAGG advantage they don't mention is ZAGG's growing range of products--ZAGG keeps creating new SKUs, plus it recently acquired iFrogz. If someone has bought one of ZAGG's products, they are likely to buy more ZAGG products, and fortunately ZAGG has a lot more.

    2. They are concerned that ZAGG has a high and growing level of accounts receivable. ZAGG only has growing receivables because they have skyrocketing sales, and the video guys didn't say anything to show that ZAGG won't be able to collect these receivables.

    3. According to the video analysts, ZAGG insiders were selling millions of ZAGG shares back in December, which the speakers said was a bad sign. A certain amount of insider selling is no problem, because it's prudent to do some profit taking when you've had huge growth. But since the speakers tell us the insiders sold when ZAGG cost $7, it turns out these weren't very smart insiders, so I don't know if I'd take their investment decisions as a guide.

    They didn't mention that Apple's rapid growth is likely to keep ZAGG's sales growing. They also failed to mention that ZAGG has products that work with smartphones and tablets other than Apple products.

    And here are two very recent articles that are rather more positive about ZAGG:

    http://www.fool.com/investing/general/2012/03/02/this-weeks-..., which includes ZAGG in its list of the five smartest stock moves this week

    http://seekingalpha.com/article/406141-zagg-1-billion-market..., which says ZAGG could reach $1 billion market cap (it's currently $300 million, so that would be more than tripling), and which cites several very interesting points:

    * ZAGG's focus for 2012 is to get into regional carriers and dealers, of which there are 1,000 (which will increase ZAGG's powerful reseller network advantage).

    * Walmart was 16% of sales in the recent quarter, up from 0%. (Being in Walmart is huge.)

    *The invisibleSHIELD sales were 53% of revenue, as compared with 77% in 2010. (It's good to be less dependent on one product.)

    *HzO (of which ZAGG owns 37%) is currently developing OEM relationships. Timing is right for true water-blocking technology.

    *Keyboards and cases have done very well in 2011. "Year of the keyboard … and [Zagg is the] leader in keyboards."

    All in all, there's a lot to like with ZAGG. I keep reading about the very high number of ZAGG shorts. At first glance, that made me think maybe all of those smart people who have shorted ZAGG know something very bad about ZAGG. But I have read that ZAGG has been heavily shorted for the last year, yet ZAGG's price has grown a lot during that time, so maybe those shorts weren't so smart after all. But I also feel a bit suspicious about people who are very negative about ZAGG. The shorts should be pretty nervous right now. It frankly makes me wonder if there's an ulterior motive for the negative comments.

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