Risk has increased. The company added $62 million in debt so far this year to purchase i-Frogz, buy patents related to the Invisible Shield, invest in an unrelated technology (HZO), and expand fulfillment capacity. Those deals lifted intangible assets to $90 million, an amount equal to shareholders equity. Tangible equity was reset to zero. The proliferation of Android mobile phones has forced Zagg to produce a more diversified inventory, moreover, creating greater potential for write-offs on slow selling models. The debt load constrains future manoeuvrability, as well.
Zagg could continue growing at above average rates. The mobile device industry is expanding at a 35% pace and could remain vibrant well into the decade. Zagg is trading at a higher P/E multiple than Apple Computer and Google, though, the two industry leaders which have stronger balance sheets and better control of their futures. Our advice to investors seeking exposure to the mobile phone industry is to switch into those stocks. Zagg is coming off a smaller base and could deliver higher appreciation if the company doesn't slip along the way. But downside risk is significantly greater.
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