If you still hold shares in LeapFrog Enterprises, Inc. (NYSE:LF), it’s time to let go. LF said Monday that it’s delaying the release of quarterly results, and LF stock tumbled further in a nightmare year.
LeapFrog has actually been in trouble for two years now. The maker of educational toys for children started seeing increased competition for its tablet in the summer of 2013. Analysts at the time voiced some concerns, but it’s fair to say no one saw the rout coming.
LF missed Wall Street estimates for five quarters in a row, clobbered by a host of problems. After the last profit warning in January, securities lawyers couldn’t line up fast enough to the company on behalf of shareholders who saw their LF stock lose most of its value.
Among the issues plaguing LeapFrog — and by extension, LF stock — are a decline in consumer demand, particularly for its flagship tablets; lower demand for accessories and cartridges; a glut of inventory at the retail level; the delayed launch of its LeapTV game system; and lower-than-expected LeapReader sales.
As a result, the various shareholder lawsuits contend that LeapFrog management “lacked a reasonable basis for its financial guidance,” and it has indeed been blowing its outlooks for some time. Why those shareholders held on through this debacle is another matter.
LF stock peaked in July 2013 and has been in decline ever since. The selloff accelerated last summer and turned into an avalanche after the company choked on its results and outlook at the start of the year.
LF Stock’s Stunning Collapse
LF stock has lost more than 80% of its value since it peak two years ago. It down more than 55% in 2015 alone. After delaying quarterly results — LF says it needs more time to perform an analysis of the recoverability of long-lived assets — LF stock came close to breaking below $2 a share.
Analysts expect nothing but net losses for LF through this year and next, so it has no forward earnings estimate. On a trailing basis, LF stock’s price-to-earnings ratio is less than 2. That’s preposterously low.
True, when a stock gets priced for death like this, that opens the possibility for a huge reversal. We saw it happen with shares in Best Buy Co Inc (NYSE:BBY) a couple years ago. After it failed to go bust, BBY became just about the hottest stock of 2013.
That’s a long shot for any stock, however, and LF is no exception. The company’s market value has collapsed to the point where it would be an easily affordable acquisition for, say, Hasbro, Inc. (NASDAQ:HAS) — with a market cap of $143 million, LF is now a microcap stock — but it’s not clear that it can be saved. LF hasn’t been able to address its biggest problem of declining demand for two years now. It may be too late to save it.
LF stock has nothing to recommend it at this point. The market is fed up with LF stock. That management would delay results over something that could result in nothing more than a non-cash charge makes them sound either incompetent or dishonest.
If you’re still sitting on LF stock, it’s time to sell.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
