Zagg Inc. (Ticker: ZAGG)  manufactures innovative accessories for smart phones and tablet PC’s… Two of the strongest growth markets in the economy today!  You can check out their exciting products at http://www.zagg.com/

Since Zagg’s strong earnings report in November we have been tracking it closely for an excellent entry … and recently reported to our subscribers when we got on board.

Today, Zagg Inc. stock moved +8% higher on strong volume … Here are some interesting details about the company and how we are viewing “ZAGG” at the Stock Market Companion –

Stock Market Companion stock holding Zagg Inc. (Ticker: ZAGG) moved decisively higher today on strong volume.   Here’s what we like about Zagg and the Zagg stock –

1. Today’s strong up-move came on a negative day for the market.  This means that, in spite of profit taking taking place in the broad market there were buyers willing to step up and pay a premium for the stock.  At least today, buyers were not willing to wait and see if they would get a lower price – They stepped up, paid the market price and bid the stock higher.
2. Zagg Inc. has approx. 23.6 million shares issued, of which approx. 16 million are available to the general public (float).   Many Stock Market Companion subscribers understand that this type of supply can lead to strong supply and demand imbalances that can cause the stock price to move significantly – both UP and DOWN.  With the stock moving higher, this imbalance is working to our advantage.
3. As of Dec. 15th, there appears that there were approx. 18% of the stock sold SHORT.  This means that stock has been borrowed (on margin) and sold by investors at a higher price with the intent of purchasing it at a lower price.  On any given day, a short percentage below 10% is mostly insignificant.  When the short percentage moves above 10% AND the stock is of the kind that already has a very small “float”, there is real opportunity for stock price appreciation if the stock begins to advance higher and short sellers become forced to cover their losses.  Today’s advance above Zagg’s 52 week high is a significant move for the stock and may signal further upside as short sellers begin to realize that their investment is ill-timed.
4. REAL Earnings and revenue growth.  On November 9th, Zagg reported quarterly earnings of $0.16/share and year over year revenue growth of 138%. (Info. courtesy of Briefing.com)  If we assume that at least 0.16/share per quarter is achievable for the company, then that represents 4×0.16=$0.64 annual earnings per share.  If we take Zagg’s stock price of approx. $9.00/share and divide it by $0.64 we arrive at a Price Earnings Ratio (P/E) of 14.1.   The market average price earnings ratio is approximately 17, so even at a $9/share price, Zagg is selling at a strong 21% discount to the market.  In other words, Zagg’s stock would have to increase approx. 21% above $9/share to arrive at a stock price that would be equivalent to broader market share prices.  Now, this doesn’t even include a premium for Zagg’s blistering +138% year over year revenue growth rate, and the fact that the company is participating in two of the hottest markets currently = smart phones and tablet PC’s.So why are investors selling the company’s shares short?  Because they are looking at how far the company has already come in terms of share price appreciation = In June 2010 the stock was selling for $2.37/share, and they conclude that this advance is unsustainable and that some profit taking should materialize, from which they want to earn 10-30% returns (or more).  Unfortunately for them, even if this advance was irrational these famous words of John Keynes apply –  the market (or a stock) can “remain irrational for a longer period of time than an investor can stay solvent”.
5. We like the products that the company offers.  One of the hottest areas of growth are the smart phone market and the tablet PC market.  If a consumer shells out money for these products, why not spend an extra $20 to protect the glass display?  This company’s revenue growth will not last forever but for the moment the products that they offer are in the “Bulls-Eye” for the smart phone and tablet PC market.  You can see their innovative products here at http://www.zagg.com/
6. From time to time companies like ZAGG Inc. come along that are publicly traded and they catch the imagination of investors.  The freshness of the product, the real earnings, revenue growth, low float, and short ratio make up a potent mix for share price explosion.  The stock can advance as long as it is putting up good earnings and attracting investors.  We could of course be all wrong, be we suspect that ZAGG is still not on too many investors screens and that there is quite reasonably a good push higher possible.  Zagg reports their earnings again on March 16th.  That’s a good 2 months away – which provides ample time for this stock to move higher on “anticipated” earnings.  Of course, if future earnings are somehow put into doubt then the stock can crumble like stale bread.

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Please remember – at the Stock Market Companion we do not and cannot give individual investment advice. According to the State of Washington RCW21.20.005 the Stock Market Companion is not a Registered Financial Advisor and we do not render any advice on the basis of the specific investment situation of a particular individual. This information is for a wide readership and is not intended for any particular individual,  and under no circumstances should our Market Update or Watchlist be considered an investment recommendation or plan for any specific individual.  By accessing this material, you agree that the Stock Market Companion will not be held liable for any actions taken by a subscriber or other parties.  Please seek the counsel of a broker or other licensed investment professional for accurate pricing and concerning the suitability of all investments that you may be considering. Disclosure : You understand that the Stock Market Companion holds positions in the above mentioned securities.  Based on market related or personal events these positions may change without notice.

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