Is LeapFrog Enterprises, Inc. Destined for Greatness?

Let's see what the numbers say about LeapFrog (LF).

May 29, 2014 at 10:33AM

Investors love stocks that consistently beat the Street without getting ahead of their fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with robust and improving financial metrics that support strong price growth. Does LeapFrog Enterprises (NYSE:LF) fit the bill? Let's take a look at what its recent results tell us about its potential for future gains.

What we're looking for
The graphs you're about to see tell LeapFrog's story, and we'll be grading the quality of that story in several ways:

  • Growth: Are profits, margins, and free cash flow all increasing?
  • Valuation: Is share price growing in line with earnings per share?
  • Opportunities: Is return on equity increasing while debt to equity declines?
  • Dividends: Are dividends consistently growing in a sustainable way?

What the numbers tell you
Now, let's take a look at LeapFrog's key statistics:

LF Total Return Price Chart

LF Total Return Price data. Source: YCharts.

Passing Criteria

3-Year* Change


Revenue growth > 30%



Improving profit margin



Free cash flow growth > Net income growth

438.7% vs. 1,100%


Improving EPS



Stock growth (+ 15%) < EPS growth

63% vs. 1,620%


Source: YCharts. * Period begins at end of Q1 2011.

LF Return on Equity (TTM) Chart

LF Return on Equity (TTM) data. Source: YCharts.

Passing Criteria

3-Year* Change


Improving return on equity



Declining debt to equity

No debt


Source: YCharts. * Period begins at end of Q1 2011.

How we got here and where we're going
We first looked at LeapFrog last year. It's lost one of its passing grades in this second assessment, but it nonetheless finishes with a solid five out of seven possible passing grades. LeapFrog's revenue began to slide last year, while its net income growth continues to outpace gains in free cash flow during our three-year tracking period. Will the children's tablet specialist be able to turn its sliding top line around to earn a rare perfect score when we look at it in 2015? Let's dig a little deeper to find out.

LeapFrog suffered a gory first quarter, as parents increasingly prefer traditional tablets and online apps over LeapFrog's electronic learning toys. The only real bright spot in the quarter was that Wall Street has all but given up on the company, so even a weak performance was enough to beat analyst estimates. CEO John Barbour blamed a dramatic shift in consumer buying habits and high levels of inventory after a weak holiday season for the drop in revenue and net income.

LeapFrog now expects full-year earnings to fall closer to the lower end of its earlier guidance, as excitement for the LeapPad among children and parents continues to fade away. However, LeapFrog remains committed to rolling out new products in the second quarter, which should, if not return it to meaningful growth, at least do something to reverse its slide. Fool analyst Blake Bos notes that LeapFrog's products still occupied 15 out of the top 20 ranks for children's electronics on Amazon earlier this year, which shows a great deal of brand strength despite sliding sales. In addition, the company also expects strong international growth, with revenue from France projected to grow by as much as 40% year over year. The company's debt-free and cash-rich balance sheet also allowed it to begin a share repurchase program this year, which could help sustain bottom-line growth even if the top line continues to stall.

LeapFrog has faced fierce competition from (NASDAQ:AMZN) and Samsung, which have both made fully functional all-purpose tablets at reasonable price points, which in many cases now compare quite favorably to the LeapPad's price tag. Amazon's entry-level Kindle Fire, at $140, costs less than the $150 LeapPad Ultra, while Samsung's Galaxy Tab 3 Kids tablet, with parental controls and pre-loaded educational content, offers a robust experience for kids at a somewhat higher price point.

Fool consumer goods specialist Rick Munarriz notes that LeapFrog's recently unveiled wearable fitness tracker, the kid-friendly LeapBand, will be available in the U.S. and Canada this summer for $40. This device, which comes with a high-resolution color screen to run 50 different free apps, won't compete directly with adult-oriented products from Fitbit, Jawbone, or Nike's FuelBand, which should help the company carve out a niche in the relatively underserved kids' wearables market. The company is also expected to roll out a video game console based on its new LeapTV platform this fall.

Putting the pieces together
Today, LeapFrog has many of the qualities that make up a great stock, but no stock is truly perfect. Digging deeper can help you uncover the answers you need to make a great buy -- or to stay away from a stock that's going nowhere.

Are you ready to profit from this $14.4 trillion revolution?
Let's face it: Every investor wants to get in on revolutionary ideas before they hit it big. Like buying PC maker Dell in the late 1980s, before the consumer computing boom. Or purchasing stock in e-commerce pioneer in the late 1990s, when it was nothing more than an upstart online bookstore. The problem is, most investors don't understand the key to investing in hyper-growth markets. The real trick is to find a small-cap "pure play" and then watch as it grows in EXPLOSIVE lockstep with its industry. Our expert team of equity analysts has identified one stock that's poised to produce rocket-ship returns with the next $14.4 TRILLION industry. Click here to get the full story in this eye-opening report.

Alex Planes owns shares of LeapFrog Enterprises. The Motley Fool recommends and owns shares of, LeapFrog Enterprises, and Nike. 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.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.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information