When considering any stock for your portfolio, don't be swayed by just the positives. Examine its pros and cons and decide whether its possible upside outweighs its risks. Let's take a look at Zagg
One factor in Zagg's favor is the business it's in: It makes and sells accessories for consumer electronics and handheld devices. Think protective covers, earbuds, portable batteries, chargers, keyboards, and more, for the likes of cell phones, tablets, laptops, digital cameras, gaming devices, and even, among other things, military helicopter blades. Many of these product categories are selling briskly, and that bodes well for Zagg.
For example, 67 million tablets were sold worldwide in 2011, and the market is expected to grow by 39% annually through 2015, according to Transparency Market research. Smartphone sales in 2011 surged by 67% over 2010 levels, totaling 470 million. They're expected to top 1 billion in volume in 2015. Tech giant Apple
Another good reason to buy into a company is when there's a catalyst on the horizon that can take it to a higher level. Zagg hasn't been selling its wares in Wal-Mart
You might be thinking of selling Zagg, but lots of investors already have sold shares of Zagg -- short. Not too long ago, it was one of the most heavily shorted stocks on the market, with more than half its shares sold short. There can be an upside to a heavily shorted stock: If the company does well and the stock starts a strong upward climb, a "short squeeze" can result, with many shorters covering their positions by buying shares, which will drive the share price up even more. But that doesn't always happen. Many times, these bearish investors are on to something, paying attention to red flags.
One worrisome thing is the concentration in its sales channels. Best Buy
Another concern is that of competitive advantages. Zagg doesn't have the luxury of many barriers to entry for potential competitors, at least with some of its offerings. It's hard for a new airplane manufacturer to emerge, because of the huge capital investments, among other things. But it's far easier for a newcomer to develop a protective covering for a handheld device. And some competitors are deep-pocketed, with exceptional marketing and distribution strengths. Apple, for instance, also sells its own covers for its many products.
The company's inventory numbers aren't heartening, either, with items seemingly staying on shelves longer as inventory turns and days-in-inventory figures rise.
The folks at Citron Research came down very negatively on Zagg in July: "ZAGG is presenting an intentionally distorted financial picture of its current business, playing word games while flirting with outright fraud. Citron predicts that ZAGG will not experience the explosive growth that management and the analysts project for the future, and the retail investors piling in now as its enterprise value approaches $500 million will take huge losses as a consequence."
Citron may or may not end up proven correct, but its cautions are worth considering.
If you're not convinced to buy or sell, then just hold off. Perhaps give the company time to prove itself more, diversifying its distribution channels and posting continued growth.
Though Zagg has its appeal, I'm not rushing to buy shares. There are plenty of other exciting candidates to consider for our portfolios.
These question marks may make investors uneasy in the long term. If you're looking for more promising investments, check out "5 Stocks with Explosive Potential" and "4 Stocks as Cheap as They've Ever Been." You can download this special free report today.