Zagg Might Pull It Off - But the Risks Are High

Jul. 06, 2011 4:12 AM ETZAGG Inc (ZAGG)25 Comments
Roddy Boyd profile picture
Roddy Boyd

The world of penny stocks is always worth a stroll because no matter what you come across, almost every company and its story ultimately follows the same script.

A maker of cellphone and computer accessories from Salt Lake City, Zagg (NASDAQ:ZAGG), is trying to buck that trend, and based on this chart, you could think it is pulling it off, managing to emerge from the primordial ooze of a reverse merger and walk upright in the sun.

Think again.

Barely four years from reorganizing out of a busted shell – its predecessor company, Amerasia Khan, folded after two years of trying to peddle “Academic Regalia,” without finding a single customer – Zagg has gone from just over $5 million in revenues in 2007 to more than $76 million last year.

With a growth trajectory like this, and the knowledge there is a first time for everything, the sky is traditionally the limit. In Zagg’s case, though, it’s a safer bet that things are likely to end up on a less lofty plateau.

Zagg’s major product, invisibleShield, is a cover protecting a cellphone’s (or handheld device’s) screens and buttons. That’s it. In fairness, it is an admittedly higher end offering than many of its competitors, albeit with a rather involved application, requiring a spray solution and a squeegee.

Despite holding three patents, marketwise, there is no conceivable barrier to entry for anyone who wants to grab market share, largely owing to it being made with polyurethane film; the only other thing needed to get into the protective cover business is a low-tech stamping machine and a website. Cellphone shields may rival Silly Bandz as the global economy’s most readily replicable product. There are at the very least dozens of different competitors selling products that are virtually identical at sharply lower prices.

This article was written by

Roddy Boyd profile picture
Roddy Boyd is an investigative reporter who has worked for Fortune Magazine, the New York Post, The New York Sun and Institutional Investor News. He also wrote Fatal Risk: A Cautionary Tale of AIG's Corporate Suicide, Long-listed for the FT & Goldman Sachs Business Book of the Year Award 2011.He is now the editor and founder of the Foundation for Financial Journalism, a tax-exempt non-profit that uses in depth investigative reporting to provide accountability on companies and other market participants that abuse public capital.

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