Trade Alert – ZAGG when others zig

Last week, I got an email from a good friend and the best value investor I know on his latest cheap stock pick, and when a guy with Robert Marcin’s record talks, I listen.

Here’re just a couple of examples of why:

Long-time readers may remember that we bought Seagate Technologies (STX) just more than a year ago, in January 2012, when Marcin was pounding the table.  The shares were at about $18, and Marcin wrote, “Every once in a while one my deep value style comes across a name that is compellingly cheap despite a big move and a good chart. Seagate is that stock, right here right now.”  We bought some calls and just three weeks later, STX was trading in the high $20’s.  I sold some of those calls for a more than 500% return.  In three weeks.

Here’s another example of Marcin’s excellent instincts.  In June of 2008, shares in Crocs, Inc. (CROX) had fallen to around $8 per share, from a high of more than $75 per share in late 2007 and Bob told me to get long.

You can watch a clip of me recommending the stock on my TV show and in the precursor to the Revolution Investing newsletter on YouTube called, “Fox Happy Hour Cody’s Big 3: XM!, Trend Rally, CROX” -

Note the market call I made there about the Counter Trend Rally — caught that right, but more importantly, I was right to stay bearish as the markets were indeed topping there as I suggested at the time. Revolution Investing In Motion. (New tagline now that Research In Motion is actually dead?)

Here’s what Marcin wrote back then:

“My formula is to buy stocks that are down and compellingly cheap in companies with solid fundamentals. Typically there is some short-term hiccup or expected issue that has driven the share price to such attractive levels. We in the investment business call that “hair.” My stocks are undervalued because they have hair on them, especially at the bottom. Currently, I am buying one of the hairiest stocks in the world today. The company is Crocs (CROX), and the idea is insanely controversial. The stock is down and too cheap to be true. Unless, of course, the business tanks. Right here, Crocs represents a bimodal outcome. If the company resurrects its growth rate and fixes its inventory problem, the stock will soar. For the stock to drop from here, the business must collapse. I don’t see that happening.”

It took some time—we all know what happened to the market in late 2008—but by summer of 2011, Crocs shares were selling for more than $30.  They’ve pulled back some since then, but even shareholders who missed out on selling for the quadruple still have a near-double on the books.  So like I said, when Bob Marcin talks, I listen.

Bob’s now pounding the table on Zagg, Inc. (ZAGG).  Zagg makes mobile device accessories, including keyboards, cases and protective films.  More recently, at the Consumer Electronics Show, Zagg unveiled a new mobile gaming controller for iOS products (more on that below).

Bob’s note to me said that the “stock is down, oversold and stupid cheap.”  He says the company’s new CEO (Randy Hales) has a great record building consumer products and Marcin’s looking for a beat when Zagg reports earnings in two weeks.  He also said, “Intermediate term financial goal $1 billion sales, with current margins, that means $3+ EPS.  If achieved, stock at $36-$45, IMHO.”

Whoa.  ZAGG’s at just more than $7 right now, which means if Bob’s analysis is right, we’re talking a five- to six-bagger.  So, I crunched the numbers and did some of our Revolution Analysis:

Company: Zagg
Symbol: ZAGG
Balance Sheet:
Cash and Cash Equivalents: 16.3 M
Long Term Investments: 4.0 M
Total Cash: 20.3 M
Total Debt: 44.5 M
Net Cash: (24.2) M
Outstanding Shares: 30.6 M
Net Cash / Share: $ (0.79)
Share Price: $ 7.20
Enterprise Value / Share: $ 7.99
Total Market Cap: 220.5 M
Enterprise Value: 244.7 M
Enterprise Value Multiple: 8.2 x Forward Earnings
0.8 x Forward Revenue

Adjusted for about $24 million in net debt, the enterprise value per share is about $8 per share, or 8.2x 2013 earnings and 0.8x revenue.  Earnings are expected to grow by 31% this year, to $0.97 per share.

Shares in Zagg tanked last August after the company’s (then) CEO Robert Pedersen stepped down, and the company also revealed that the executive had sold more than half a million shares in order to cover margin calls (Pedersen still owned more than 3 million shares.)  There were concerns that Pedersen was speculating in the stock and a class action lawsuit was initiated.  Zagg’s earnings that quarter actually met expectations, but apparently the Street was looking for higher guidance going forward, which the company did not offer.

Zagg’s third quarter earnings beat expectations by a wide margin.  Sales jumped 30%, the gross margin expanded by 210 basis points, to 44.5%, and at that point the company did increase full-year guidance for sales.  The stock, however, after an initial pop, has continued to languish.

What I really like about ZAGG, after doing my own analysis, is the product pipeline and the new products intro’ed at CES last month, especially the iFrogz Caliber Advantage gaming controller.  The device was a CES Innovations Design and Engineering Award honoree, and it’s an open development platform.  The device will provide a “console-style gaming experience for their iPhone 5 or iPod touch.”

iOSgamecontroller“The Caliber Advantage is an analog game controller and case, providing 360-degree motion control with viewing options in both portrait and landscape. Gaming action is made possible through Bluetooth® 4.0 pairing and dual, left and right slide-out controls that feature responsive keys for an accurate, high-quality gaming experience. Available in the first half of 2013 for $69.99, the Caliber Advantage will also feature an integrated lithium polymer battery offering 10-12 hours of continuous play without the need for a charge.”

Cool.  Gaming apps are among the most popular apps, and I think gamers will spend $60 in a heartbeat to make the phone/gaming experience better.

Zagg also debuted a line of accessories for children that includes plush toys which amplify sound for $50, volume-limiting earbuds and headphones and a protective iPad case.  Zagg’s Origin desktop speaker system won the Gotta Be Mobile “Best Accessory” at CES 2013; it will launch this spring, for $250.

Like Marcin, I also like the fact that Zagg’s revenue has been more than 90% U.S. based—that leaves a ton of upside as Apple products grow internationally.  Finally, Zagg has a new distribution deal with Tech Data, refinanced its debt in December and also announced a share repurchase program.  About one-third of the shares outstanding are sold short right now—that means if the company does beat, a short-squeeze could ensue.  But even if it doesn’t, we’re looking at Zagg as a long-term value play—that’s what Marcin’s known for and that’s how we’re going to think of this investment.

In order to make room for Zagg in the portfolio, we’re selling Nuance today.  The company disappointed and I’m unhappy with where things appear to be going.  Time for greener pastures. I’ll be selling all my Nuance position and I’ll be adding a first tranche of Zagg common stock today, about 1/3 of the position I’ll be looking to build over the next couple weeks. Let you know each time I add to it from here.


  1. Tom E Williams says:

    Hi Cody,

    Interesting pick and I’m just wondering what you think of the analysis below regarding ZAGG….thanks.

    Corning (NYSE: GLW) may have created the invincible screen to put screen and product protector companies like Zagg (NASDAQ: ZAGG) out of business.

  2. Don Ward says:

    Love the post here Cody on Zagg. Motley Fool has an article titled “How to Make a Company Disappear 101″. In it they make the case for Corning’s new Gorilla Glass making Zagg’s invisible shield obsolete and further putting them out of business. Since Zagg’s revenue is comprised of 48% sales of invivibleSHIELD film, does this worry you? Here’s the link:

  3. condor grass says:

    It’s very simple to find out any matter on net as compared to textbooks, as I found this piece of writing at this web site.

  4. If some one desires to be updated with most recent technologies then he must be pay a quick visit this web
    site and be up to date daily.

  5. Very quickly this site will be famous among all blog viewers, due to it’s pleasant posts

  6. You really make it seem so easy with your presentation but
    I find this matter to be really something that I think I
    would never understand. It seems too complicated and very broad for me.
    I’m looking forward for your next post, I will try to get the hang of it!

  7. Britney says:

    Write more, thats all I have to say. Literally, it seems as though you
    relied on the video to make your point. You clearly know what youre talking about, why waste your intelligence
    on just posting videos to your blog when you could be giving us something
    enlightening to read?

  8. Candelaria says:

    Hello there, I found your web site by way of Google even as searching for a related subject, your
    website got here up, it seems to be great. I have bookmarked it in my
    google bookmarks.
    Hello there, just become alert to your weblog through
    Google, and found that it is really informative. I’m going to be careful for brussels. I’ll appreciate if you proceed this in future.
    Lots of other folks shall be benefited out of your writing.


  9. Wow that was unusual. I just wrote an very long comment but after I clicked submit my comment didn’t show
    up. Grrrr… well I’m not writing all that over again.
    Anyways, just wanted to say excellent blog!

  10. Others may feel restricted and deprived with these very limiting diet plans,
    and may end up discouraged to continue on with a healthy

  11. My brother recommended I might like this blog.
    He was totally right. This post actually made my day.

    You can not imagine simply how much time I had spent for this information!


  12. I and also my buddies appeared to be checking out the great techniques on your web site and all of a sudden I had an awful
    feeling I never thanked you for those tips. All the boys
    had been consequently very interested to learn them and have in effect sincerely been having fun with those things.
    Many thanks for actually being well accommodating and then for
    making a choice on variety of high-quality ideas most people are
    really desirous to discover. My very own sincere apologies for not saying thanks to

  13. Good way of describing, and fastidious article to obtain data
    about my presentation subject, which i am going to present in

  14. Now, you have a weight loss 60 lbs healthy bloiod supply.
    To make it, you find the program that you carry forfh once or twice
    a yar which can tune you up to, literally, our actions, nor aam I profiting from any detox pill distribution.

  15. However once i began i discovered this really is
    a program for everyone. One serving of the choices below will provide almost 4 gms of Omega 3 fats.

  16. You have to manage graphics suits to the website pages and add alt-text.

    It’s essential to ensure a person draw inside a individuals
    eyesight regarding specific focus on customers by way of lively and also intriguing pictures on your website coupled
    with booklets. To assist business enterprises to have the
    type of websites to truly reflect its vision and business
    philosophy, many web development companies have come into being offering
    innovative web technologies.

  17. Hey! Do you use Twitter? I’d like to follow you if that would be ok.
    I’m undoubtedly enjoying your blog and look forward
    to new posts.

  18. It will enable the trader to receive the data wherever they are.
    Binary options signals can even be delivered via email.

  19. Pretty nice post. I just stumbled upon your weblog and wished to say that I have
    really enjoyed browsing your weblog posts. In any case
    I’ll be subscribing for your feed and I hope you write once more very soon!

  20. Do you have a spam issue on this blog; I also am a blogger, and I was curious about your situation; many
    of us have developed some nice methods and we are looking to trade strategies with others, please shoot me an email if interested.

  21. Practically all remedies that declared to help rep
    street address the herpes issue caused signs like headaches,
    organizing up, queasiness and also the other individuals.
    The Supreme Herpes Process is not going to deliver completely
    wrong guarantees along with its results was proven a lot
    of occasions. By using a lot of the given options will help you do away with this malware totally, boosting
    your overall health and making you feel drastically far better.

  22. If you desire your business to develop, it’s important to pay attention for your USP.
    I thought we were looking at the strangest sounding words when I first heard them.
    In the entire body of the post, enter your
    email address contact information so that people can contact you
    when they want to choose the domain.

  23. Hi, I do think this is a great website. I stumbledupon it ;) I may revisit
    yet again since I bookmarked it. Money and freedom is the best way to change,
    may you be rich and continue to guide other people.

  24. An outstanding share! I have just forwarded this onto a coworker who
    was doing a little homework on this. And he actually ordered me breakfast simply
    because I discovered it for him… lol. So let me reword this….
    Thanks for the meal!! But yeah, thanks for spending some time
    to talk about this issue here on your internet site.

  25. Audra says:

    Heya! I realize this is sort of off-topic however I needed to ask. Does building a well-established website like yours require a lot of work? I am completely new to blogging however I do write in my diary on a daily basis. I’d like to start a blog so I will be able to share my personal experience and views online. Please let me know if you have any kind of suggestions or tips for brand new aspiring blog owners. Thankyou!

  26. More plus more new models through the most popular Japanese makes can be found
    as USED CARS FOR SALE in Japan. In the year 2011,
    almost 60 million cars were produced all over the
    world, and sevwral of those will soon be in the used-car market.
    On the web site you will find more information related to the offers, specials a whole bunch more more that is in connection with the dealership.

  27. Now I am going away to do my breakfast, once having my breakfast coming
    over again to read more news.

  28. Our trustworthy legal services have always attracted
    the interest of numerous clients. Even if a state in an ‘at will’ state,
    where both employer and employee can terminate the employment
    relationship for any reason, this doesn’t always apply to workers comp cases’but
    there is a fine line. To find an attorney that specializes in personal injury and family law
    it is important that you are willing to do a bit of research
    about him or her.

  29. I’ve read several excellent stuff here. Certainly value bookmarking for revisiting.
    I wonder how a lot attempt you put to create this type of wonderful informative web site.

Speak Your Mind

Scutify is the world's best app for traders and investors
Get the Scutify Android App today -
Sponsored Scuttle
Get the Scutify iPhone App -
Sponsored Scuttle
More in Trade Alert
Trade Alert – Tiny NVDA options trade (and Take Our Poll, Please!)