LeapFrog Enterprises (NYSE: LF) is a global company that is dedicated to the design, development and marketing of technology-based learning products for children. There is a lot to like here. Aside from innovative product, the company is steadily gaining a considerable portion of the market share in its sector. It has also posted 10 consecutive quarters of earnings on the plus side making it a true value in the small-cap market.
In November, LeapFrog reported third quarter earnings of 51 cents per share, beating Zacks Consensus Estimate by 24.4 percent and, better yet, outperforming last year’s earnings by a hefty 71 percent. Net revenue leaped (pun intended) 28 percent year over year to $193.1 million, surpassing the Zacks Consensus Estimate of $174 million. Revenue was driven by a rising demand for the LeapPad hardware platform and the launch of new products such as LeapPad2, LeapsterGS and the Touch Magic toy line. LeapFrog’s growth was not limited to the domestic segment. The company saw phenomenal international revenues, up 36 percent to $34.9 million. In the U.S., net revenue was up 26 percent to $116 million. Gross profit expanded 25 percent year-over-year to $77 million.
Aside from a sound business strategy what makes LeapFrog so successful is that it has a firm grasp on the needs of its client base. Over the years, the company has been a pioneer of ground-breaking educational games, toys, videos, and tablets targeting children between the ages of three and nine. In November, the company signed an agreement to partner with Lionsgate (NYSE: LGF), a leading global diversified entertainment company. Building on the success of wildly popular library of DVDs the two plan to develop, produce and distribute four new animated movies to be released in DVD and digital beginning in early 2014.
The company has outstanding growth potential. For 2013, the Zacks Consensus Estimate advanced 7.6 percent to 85 cents over the same time frame, supported by five upward revisions out of seven estimates. The current assessment implies year-over-year growth of 3.4 percent. The return on equity is also good-looking. It has a trailing 12 month ROE of 21.4 percent, compared with the same group average of 2.8 percent. LeapFrog has a PEG ratio of 0.52, which indicates that the stock is realistically valued given the expected growth rate of 19.5 percent. The company has a market cap of $610.10 million and is trading at $9.30.