Shares of LeapFrog (NYSE: LF) fell as much as 28% this morning, after the toymaker posted preliminary financial results that point to a disappointing holiday quarter.

You probably wouldn't get that from reading this morning's press release. In fact, it almost seems as if 2010 was a cheery turnaround for the maker of tech-based learning toys:

  • Net sales climbing 13% to 14% higher represent its heartiest growth rate in seven years.
  • Earning between $0.03 a share and $0.06 a share in 2010 makes this LeapFrog's first profitable year since 2005.
  • International sales surged 20%, proving that LeapFrog is a fast-growing brand abroad.

Unfortunately, this is a far cry from where the company thought it would be just two months ago. During LeapFrog's third-quarter report, it targeted earnings between $0.20 a share and $0.30 a share on 15% to 20% in top-line growth.

Net sales soared 27% through the first nine months of the year, so the holidays got more than just a little bumpy.

The market didn't see this coming, but I did when I advised investors to throw the stock away after its blowout third quarter in November. I was troubled when it simply reiterated guidance after the strong results, suggesting that the fundamentals were starting to deteriorate. Well, that's exactly what happened.

I bashed LeapFrog as a contrarian when it was soaring. Now that I'm switching sides with Mr. Market, I'll point out that I think it would be a mistake to sell after today's drubbing.

We live in acquisitive times, and this is the kind of shakedown that could bring Hasbro (NYSE: HAS) or Mattel (NYSE: MAT) sniffing around. Even Nintendo (OTC BB: NTDOY.PK) -- a company that has come under fire when it was revealed that gamers under six shouldn't be playing its oft-delayed 3DS for extended periods of time -- could win back young gamers and diversify its business from consoles and portables by nibbling on LeapFrog.

I'm also upbeat on the prospects for Learning Path, LeapFrog's free web-based tool for parents to track their children's progress through its educational toy lines. There are now almost 6 million registered users on that front.

LeapFrog will be challenged, especially as tablets get cheaper and more durable. Barnes & Noble's (NYSE: BKS) Nookcolor offers interactive children's books, and a secondhand Apple iPod touch can do far more with its tiny touchscreen through free or nearly-free apps than any of LeapFrog's learning gadgetry.

However, the same investors that were overly bullish on LeapFrog a couple of months ago are making the same mistake by being overly bearish.

Someone will come around and kiss this frog, hoping to turn it into the prince it used to be.

Should LeapFrog put itself up for sale? Share your thoughts in the comment box below.

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Longtime Fool contributor Rick Munarriz owned his share of LeapFrog toys when his kids were younger. He does not own shares in any of the stocks in this story. The Fool has a disclosure policy. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.