Zagg
Last but not least, let’s take a look at Zagg Inc (NASDAQ:ZAGG). Few companies tied itself to Apple Inc. (NASDAQ:AAPL)’s coattails as firmly as Zagg Inc (NASDAQ:ZAGG), which made a name for itself with its invisibleSHIELD protective film for smartphones and tablets. It later started producing full cases and expanded its product line for popular Android devices as well. When sales and profitability weakened, it fragmented its product line further and started offering mobile keyboards, portable power sources and headphones via its acquisition of iFrogz. In other words, Zagg Inc (NASDAQ:ZAGG) became a mini-Logitech and Skullcandy rolled into one very unappealing package.
Whereas Zagg Inc (NASDAQ:ZAGG) was the dominant name in smartphone and tablet protection when the iPhone was first released, the market is now saturated by cheaper products from companies such as OtterBox, which became the number one smartphone case manufacturer in America in February. Fashion accessory companies such as Coach, Inc. (NYSE:COH), Michael Kors Holdings Ltd (NYSE:KORS) and Louis Vuitton also released more expensive high-end iPhone and iPad cases, which further reduced Zagg’s market share. Faced with those daunting odds, Zagg had to slash its prices to remain competitive, and its margins crumbled.
Last quarter, Zagg’s earnings plunged 82.9% as its revenue declined 7.2%. Looking into the second quarter, Zagg recently announced that it expects its revenue to slide 17.2% year-on-year to $51 million, completely missing the consensus estimate of $57.5 million. No information was provided about its bottom-line growth, which will be revealed when the company reports its full second-quarter results on August 1.
At this point, there’s no compelling reason to own Zagg Inc (NASDAQ:ZAGG). The smartphone market is currently between major product releases, which will continue dragging down the company’s top and bottom-line growth. The upcoming iPhone 5S might slightly boost sales numbers, but Zagg still must contend with an increasingly crowded market while preserving its bottom line.
The Foolish Bottom Line
In closing, let’s take a look at the fundamentals of these three accessory makers.
5-year PEG | Forward P/E | Price to Sales (ttm) | Return on Equity | Debt to Equity | Profit Margin | |
Logitech | 1.14 | 20.52 | 0.52 | -24.22% | No debt | -10.86% |
Skullcandy | 7.23 | 19.45 | 0.56 | 14.30% | No debt | 6.29% |
Zagg | 0.34 | 6.08 | 0.69 | 8.94% | 34.86 | 3.94% |
Advantage | Zagg | Zagg | Logitech | Skullcandy | Logitech, Skullcandy | Skullcandy |
Source: Yahoo Finance, 7/18/2013
Although Logitech International SA (USA) (NASDAQ:LOGI) and Zagg look undervalued at current prices, investors should consider the long-term outlook of both companies. Both companies lack a defensive moat against a horde of competitors that aren’t afraid of sacrificing margins to gain market share. Skullcandy Inc (NASDAQ:SKUL), on the other hand, offers stylish products that lack focus – does the company want to appeal to gamers, skateboarders, or music-loving pedestrians?
In business, piggybacking off the success of larger companies only works when management is nimble enough to readjust its strategy to shifting trends. If not, then a company could suffer the same fate as this trio of fading accessory makers.
The article Is This Trio of Fading Accessory Makers Doomed? originally appeared on Fool.com and is written by Leo Sun.
Leo Sun has no position in any stocks mentioned. The Motley Fool recommends Logitech International SA (NASDAQ:LOGI) (USA). The Motley Fool owns shares of SKULLCANDY INC. Leo is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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