#shortpositions

[rethinking-the-dollar]

Silver is significantly undervalued due to market manipulation by banks with short positions, but its true value, driven by supply-demand imbalances and strategic importance, will eventually surge, making it a smart investment now.

[ssinvestor-blog]

LeapFrog: Looks cheap, but wrong product with wrong direction

As of late, there has been a scarcity of investment ideas. I usually hang around sites like Gurufocus, WSJ, Bloomberg, Reuters, and Google News. When I first started investing, I was hooked on finding cheap, cigar-butt net-nets or companies with really low P/E’s, and I would find them using screens on Google Finance.

So, essentially, I had the bright idea to start doing this again in desperation to find and idea and came across LeapFrog Enterprises. I liked their financials, they had great cash flow, low P/E (around 5-6x)and, on the surface, some decent product reviews; however, something still didn’t sit well in my stomach. I reluctantly proceeded to open up their 10k and started digging.

These guys sell a product called a “LeapPad” which, based on favoured reviews, is a great product for kids and it keeps track of their learning progress. Also, they have a team of educational professionals that design these products. The business model works this way: you have to buy a tablet from $81-$160, then you have to pay $7.50-$10 for apps. LeapFrog sells their products on-line and in big box stores like Wal-Mart and Toys r’ Us, and these relationship have intangible value.

As I tried to get myself to like the product, I couldn’t help but think why on earth would someone spend money on this tablet for their child instead of buying a iPad or Android tablet? So, then I started sifting through the negative reviews on Amazon. The primary complaint was in line with the exact question I had asked. The LeapFrog apps were great, but customers were annoyed with the price you had to pay for them compared to a free or ~$3 iPad or Android app you could get. Furthermore, the batteries would die fairly quickly and you play around with cartridges as opposed to having all software downloaded and run from the LeapPad itself.

Lastly, I’m at the age where friends and family have many young children. Not one of them had the LeapFrog, and almost 90% of them had an iPad which the kids handled with care (for those fearful of potential tablet damage). I also observed the children using the tablet (as young as 2 years) seamlessly and intuitively without help.

The positive idea that LeapFrog has going for its company is the ability to track progress and the multitude of neat games children can play. If they produced apps for Apple, Android, and Windows tablets and phones with the ability to track their progress in the a cloud environment, the company would do extremely well. However, if they keep selling these tablets and forgo the shift to other predominant platforms, there may be a downward Research In Motion-like spiral, where a shift in proven technology was not made.

I have no positions long or short in this company.