Congratulations to MBA1 Bryce Webster, winner of the 2013 SIMR Stock Pitch Competition. Bryce’s Buy recommendation on LeapFrog (LF) was selected from a field of 30+ MBA1 stock pitches on Sunday, October 6th. Runners up at the competition included Tim Wengerd and Evan Dryland. Bryce, Tim, and Evan will represent Stern at Cornell’s 2013 MBA Stock Pitch Challenge, where they will compete against students from top MBA programs across the country.
LeapFrog Enterprises (NYSE: LF)
Current Price: $9.63
Price Target: $14.50
Potential Upside: ~50%
Time Horizon: (2+ years)
Primary Valuation: 6.0x 2016e EBITDA
Brief Company Overview
LeapFrog designs and develops technology-based learning toys for kids. LeapFrog’s recent hit products have included the LeapPad, LeapPad2, and the LeapPad Ultra – basically educational tablets for kids ages 3 – 9. Ask any parent with young kids and they’re likely to have heard of (or used) LeapFrog products. In addition to selling devices, LeapFrog makes money by developing and selling educational content for the tablets (apps, games, books, movies, music, etc.).
Over the past year a significant short interest has emerged in the stock (25% of total shares), largely on the thinking that LeapFrog can’t compete in the kids’ tablet space with the likes of Amazon (Kindle), Samsung (Galaxy 3 Kids), Apple (iPad mini), and even Toys “R” Us (Tabeo e2). However, I believe that the bears are overlooking LeapFrog’s competitive advantage in content. While LeapFrog is selling tablets, what they are really selling is high-quality educational content. I’m recommending a buy on the stock for the following reasons:
In summary, I think LeapFrog (LF) is an opportunity to buy an out-of-favor company with ample growth opportunities at a reasonable price.