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Hi guys, I'm an individual investor working within a value investment framework with a long term investment horizon. That being said, I'm always looking for shorter term special situations as well. I think the markets provide opportunity for outsize profit, and I remain unconvinced of the... More
  • Leap Frog @ Calender 2011 Start (Dissapointments Abound)  0 comments
    Jan 12, 2011 12:51 PM | about stocks: LF

    My last post on the stock indicated that I was bullish, to put it simply. Apprently I was one of the few to predict LF going from negative EPS to positive q/q and earned a 20% intra day gain.

    After cashing in my shares, I will admit that I expected a gradual post-earnings upwards drift. I decided to control my downside risk by moving into out of the money call options. 

    As of today (1/12/11), the stock has taken a 20-25% tumble. Here is the reason for this: management guided lower vs. their 2010 Q3 guidance. The numbers were essentially:  20 to 30 cents full year 2010 down to 3 to 7 cents full year. This is a staggering difference, and the market reacted accordingly.

    Let's break this down further. With 3 quarters of their FY2010 done, we have the following EPS, chronologically by quarter: (37) cents (20) cents and, at last, 24 cents in the black. This gives us a net for 3/4 quarters of the year of: (33). 

    To then predict then the final quarter would bring the full year to positive 20 cents (on their previous conservative end) would indicate an Q4 EPS of not less than 53 cents per share. This works out to $34.19M in net income for the quarter. Previous quarters net income was $15.8M. So their previous forecast indicated that their q/q net would actually more than double.

    Of course, to predict that your net income will double is a bold statement. Of course, leap's business is seasonal, with the holiday shopping season being their peak earnings period; cyclical and historical.

    Well, that being said, their q/q (back to back not y/y) comp was still their first positive quarter in quite a while, so I believe that they should not have been so aggressive with their forecast.

    Now they are indicating .03/share FY10, meaning their holiday season is expected to bring in 36 cents per share.

    (36-24)/24 = this is still a 50% gain over Q3. That's pretty good.

    The market will use earnings models, NPV forecasts etc. Rather than get too bogged down in models that I believe are no applicable to such a volatile earnings structure as LF apparently has, it is best to ask the question, can they improve moving forward? 

    I believe they are setting themselves up for a FY11 full of earnings beats. A 50% gain off relatively low sales is good, and they can do better. The market overreacted and this stock is a steal at around $4/share.

    Let's see what happens

    Stocks: LF
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  • I have been adding LF on the way down. There's a long term trend of their costs falling faster than their revenue.
    Aug 2, 2010
  • Leapfrog keeps getting cheaper, all we'll need now is a downgrade - it'll become a great acquisition or show y/y beats on EZ comps
    Jul 27, 2010
  • The stress tests, released without the most intensive methodologies, caused little definitive move in the markets. Traders still pensive.
    Jul 23, 2010
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