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What: Investors were passing over shares of LeapFrog Enterprises
So what: The company actually beat revenue and earnings estimates, and raised guidance, so it was a little odd to see shares heading downward. LeapFrog is a seasonal business that takes in a vast majority of its sales in the second half of the year so its second-quarter results were widely ignored. Analysts seemed to be concerned that the company may not be ready for any unexpected demand in the second half. Inventory levels are down about 16% from where they were last year, and management expressed caution about the slowdown in the economy.
Now what: LeapFrog stock had also climbed about 300% over the year before the recent decline, and had gained 10% in just the week before so the good news may have already been priced in, and some had argued it was ready for a pullback. The company had struggled through most of the last decade, but has finally returned to profitability. Expected top-line growth won't be enough support the share price appreciation we've seen though. Management's guiding for 13%-15% sales growth this year while Wall Street sees just a 7% increase in 2013. For now, it looks as though the stock will no longer be playing leapfrog with the broad market.
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Fool contributor Jeremy Bowman holds no positions in the companies in this article. Motley Fool newsletter services have recommended buying shares of LeapFrog Enterprises. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.