Can LeapFrog See a TurnAround With the Upcoming Holiday Season?

With shares of LeapFrog (NYSE:LF) trading around $8, is LF an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

LeapFrog designs, develops, and markets technology-based learning products and related proprietary content for children worldwide. The company offers multimedia learning platform products, including LeapPad and LeapPad2 personalized learning tablets for children ages three to nine with camera and video recorder. In addition, the company provides content titles through game cartridges, ultra eBooks, downloadable apps, and books covering subjects, such as phonics, reading, writing, and math.

LeapFrog announced financial results for the third quarter ended September 30, 2013. "Despite a tough retail climate in most of the markets in which we operate, the LeapFrog team delivered another solid quarterly financial performance," said John Barbour, Chief Executive Officer. "We head into the all-important holiday season with the best product offering we have ever had.”

T = Technicals on the Stock Chart Are Weak

LeapFrog stock has remained in a range over the last couple of years. The stock is currently trading at lows for the year. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, LeapFrog is trading below its rising key averages, which signal neutral to bearish price action in the near-term.

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of LeapFrog options may help determine if investors are bullish, neutral, or bearish.

	Implied Volatility (IV)	30-Day IV Percentile	90-Day IV Percentile
LeapFrog Options	55.77%	26%	24%

What does this mean? This means that investors or traders are buying a minimal amount of call and put options contracts as compared to the last 30 and 90 trading days.

	Put IV Skew	Call IV Skew
December Options	Steep	Average
January Options	Steep	Average

As of today, there is an average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a minimal amount of call and put option contracts and are leaning neutral to bearish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Mixed Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on LeapFrog’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for LeapFrog look like and more importantly, how did the markets like these numbers?

	2013 Q3	2013 Q2	2013 Q1	2012 Q4
Earnings Growth (Y-O-Y)	-40.32%	-58.33%	-71.43%	84.34%
Revenue Growth (Y-O-Y)	4.10%	16.10%	15.18%	16.42%
Earnings Reaction	N/A	-8.30%	-2.68%	-0.22%

LeapFrog has seen decreasing earnings and rising revenue figures over the last four quarters. From these numbers, the markets have had mixed feelings about LeapFrog’s recent earnings announcements.

P = Weak Relative Performance Versus Peers and Sector

How has LeapFrog stock done relative to its peers, Hasbro (NASDAQ:HAS), Mattel (NASDAQ:MAT), JAKKS Pacific (NASDAQ:JAKK), and sector?

	LeapFrog	Hasbro	Mattel	Jakks Pacific	Sector
Year-to-Date Return	-8.92%	45.26%	23.16%	-45.90%	4.40%

LeapFrog has been a poor relative performer, year-to-date.

Conclusion

LeapFrog designs, develops, and markets technology-based learning products for children worldwide. The company is waiting to release the best product they’ve ever offered before the holiday season hoping that it’ll help the company rise. The stock has remained in a range over the last couple of years and is currently trading at lows for the year. Over the last four quarters, earnings have been decreasing while revenue figures have been rising, leaving investors with mixed feelings about LeapFrog’s recent earnings announcement. Relative to its peers and sector, LeapFrog has been a poor year-to-date performer. WAIT AND SEE what LeapFrog does next.