Should Investors Freak Out After LeapFrog Earnings?

LeapPad Ultra: Courtesy of LeapFrog.

The LeapFrog (NYSE: LF  ) investing faithful were treated to a very disappointing Monday night after the company's earnings report. Shares of LeapFrog immediately sold off by 10% following the results, and investors seem to be exiting the company in droves. Is this market freak-out warranted, or are investors making a big mistake?

Without having a crystal ball, this is a very difficult question to answer. While third-quarter results largely met analysts' expectations, the company's outlook for the fourth quarter is what sparked the sell-off. This situation stems from the continuing fear that new, low-cost Android-based tablets will hurt LeapFrog sales and crimp profit margins in the United States. It remains to be seen if these new tablets will impact the seller of kids' tablets and other educational products in a significant way, but this holiday season is set up to be the true test. 

While the decreased outlook and increased competition are bad signs for the company, one positive note for the quarter and year has been success overseas. LeapFrog managed to increase international sales by 14% compared to the third quarter in 2012. The company also continues to win numerous toy awards and is destroying the competition on Amazon's top sellers in kids' electronic systems. At the end of the day, Motley Fool analyst Blake Bos is of the opinion that a "freak-out" is not warranted. The underlying business remains the same, and investors will have to wait until after the holidays to re-evaluate the company's prospects. 

In the video below, Blake digs into LeapFrog's results, tells investors what to watch for in the fourth quarter, and explains what he'll be doing with his LeapFrog shares.

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