At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." Here, we'll show you whether those bigwigs actually know what they're talking about. To help, we've enlisted Motley Fool CAPS to track the long-term performance of Wall Street's best and worst.
And speaking of the best ...
You love your Apple
In an article earlier this month, my Foolish colleague Sarosh Nicholas told Fools all about ZAGG's latest and greatest add-on -- the Logitech Keyboard Case. You see, Apple came close to killing ZAGG's business model this year when it one-upped the company's ZAGGmate tablet protector with a new iPad Smart Cover. But rather than fade quietly into irrelevancy, ZAGG chose to recruit an ally and rejoin the fight. Collaborating with Logitech
ZAGG's new case is winning rave reviews, and this week it also won a plug from the stock pickers at Roth Capital. Based in part on prospects for profit from this product, Roth recommended buying shares of ZAGG, and predicted the shares will fetch $12 apiece within a year's time. But is Roth right?
Let's go to the tape
It's hard to say for sure. In recent months, Roth has gone disconcertingly quiet on the Briefing.com website that aggregates ratings made public by Wall Street's analysts. That's a crying shame, because last time we checked, Roth's recommendations were actually doing pretty well at outperforming the market. While not all of its picks perform well, we have Roth pegged for 75% accuracy on picks it's made in the computers and peripherals industry.
Roth has made successful recommendations of companies including Hypercom and Netezza (a particularly prescient pick, as it was acquired last year by IBM
Right or wrong, Roth?
That certainly sounds good. But I have some reservations about this pick. First and foremost, it's been several months since Roth last made an appearance on CAPS with a fresh pick. Before following the analyst's lead, I'd really like to get a more up-to-date view on its latest thinking.
My second concern is ZAGG itself. While I admit the PEG ratio is tempting, and the Keyboard Case reviews certainly look encouraging, the thing that concerns me is that ZAGG has not yet shown itself capable of generating any level of dependable free cash flow from its business. Fact is, I'm probably more inclined to play the Keyboard Case phenomenon through ZAGG's partner on the project, Logitech.
Consider: With $113 million in annual free cash flow to its credit, Logitech is generating the kind of sustainable cash profits that it needs to remain in business and continue rewarding its shareholders. (ZAGG is not.) Logitech also has a long history of successfully piggybacking upon the success of hardware makers like Dell
Mind you, I'm not saying I disagree with Roth's endorsement of ZAGG. I'm just saying that if Apple is showing a desire to keep profit from iPad peripherals for itself (and it is), then if I'm going to bet against it, and bet on a rival trying to piggyback on the iPad's success, I'd rather put my money on a company with proven staying power. So far, Logitech has shown it's got it. ZAGG has not.