To find princely gains in the market you have to kiss a lot of LeapFrogs
When the company missed its third-quarter targets, management explained it away as a timing issue. But last night it also narrowly missed its fourth-quarter mark. Yes, it's a timing issue. LeapFrog is running out of time.
Riding its signature LeapPad and a library of related titles and accessories, LeapFrog became the country's third-largest toy company, trailing only Mattel
And the business is still doing well. A quick glance at the Toys "R" Us
While LeapFrog can brag about being the leader in preschool toys with 28% of the market, it's not going to be ignored by its rivals. This week, Mattel announced that it is looking to muscle in on LeapFrog's meaty share of the educational market. This all comes at a time when LeapFrog's gross margins are falling due to the lower markups on its new Leapster platform.
Toys can be good business. Hasbro has been a stock recommendation in two of our investment newsletters, Motley Fool Stock Advisor and Hidden Gems, both of which are soundly beating the market. Quality toys, needy kids, and shrewd investors make for a potent combination.
But LeapFrog's growth is slowing. This year the company expects earnings growth of 16% to 26%. While that may price the shares as low as 20 times forward earnings, that's reasonable only so long as the company is able to withstand the competition and maintain its platform popularity. That is, after all, how you play the game of leapfrog -- by moving ahead without stumbling.
Should LeapFrog be worried about Mattel? Are you concerned that analysts were expecting as much as $1.68 a share in earnings from LeapFrog in 2004 before the company narrowed the range to $1.39 and $1.51 per share? How will LeapFrog maintain its lead in the preschool market? All this and more -- in the LeapFrog discussion board. Only on Fool.com.
Rick is a kid at heart. His five-year-old son relishes his LeapPad. However, Rick does not own shares in any companies mentioned in this story.