|Written by GSCR Staff|
|Tuesday, 30 April 2013 06:50|
Good Morning. We are staying with our recommended buying strategy from our Goldman Guide for early May in bio-tech, leisure stocks, automotive, and casual dining.
Today’s stock is along the leisure theme, but with a twist. The seasonal play here is traditionally to stocks aligned with summer vacation and the great outdoors. LeapFrog Enterprises, Inc. (NYSE – LF - $8.96) is a twist on this theme with ‘summer school’ in mind.
LeapFrog offers its flagship LeapPad and LeapPad2 tablets for children ages 3 to 9. Both of these are award winning products from several children’s educational publications. The LeapPad is the top seller in its class. The Leapster products are handheld gaming devices designed to aid in reading in children ages 4 to 8. The Company also provides content for its products with cartridges, eBooks, and apps for learning phonics, reading, writing, and math. The TouchMagic line are toys designed to encourage learning through touch pad technology. The Company’s products are used in 45 different countries and have been used in over 100,000 US classrooms. Clearly LeapFrog, is designed to give kids the early jump on school and give parents a ‘fun’ way to deliver education over the summertime months.
Not only is LF a good leisure play, but also is positioned well in the growing tablet market. The tech play here is that PC/keypad is on a broad decline while the tablet/touch market growing exponentially. The overall growth rate for the tablet sector is forecast for over 23% over the next two years annually.
Top line growth increased 27% from 2011 to 2012 for LF. Forecasts are for the growth to continue from $581 million actual in 2012 to $624 million in 2013. EPS is forecast at $0.65 in 2013 and $0.75 in 2014, giving the stock a FY13 EPS multiple below the S&P 500 average. Thus, we view it as a real value growth pick.
The combination of strong revenue and EPS growth and an over the top bullish chart from the technical perspective should help LF leap to $11.50 by the start of 3Q13.
Have a great day!
Disclosure: Goldman Small Cap Research analysts are neither long nor short these shares but may elect to purchase the stock within the next 48 hours.
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