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January 25, 2012 at 14:05 PM EST
LeapFrog Running on Tablet Power
LeapFrog's LeapPad children's tablet has helped resurrect the company's stock over the past few months. Now, the company needs continued demand.

If the recent Pew Foundation study showing e-reader and tablet ownership doubling in December has you contemplating investment in a tablet maker, you might want to take a closer look at LeapFrog Enterprises (NYSE:LF), maker of the LeapPad.

The children’s educational toy maker recognized early that e-readers and tablets were being used more by consumers for entertainment, and it came up with a must-have tablet of its own for kids. Unlike Amazon’s (NASDAQ:AMZN) Kindle and Barnes & Noble’s (NYSE:BKS) Nook, whose sales were largely fueled by price cuts, demand for the LeapPad was so high, many parents were willing to pay more than the suggested retail price to get one.

A holiday fluke, you say? How about a continuation of the popularity the tablet has enjoyed since its release last summer? Back in June, presale units of the LeapPad sold out within two weeks.

It’s not difficult to see why the colorful learning systems for toddlers and pre-tweens have been hits with kids and parents. Although the tablets don’t offer much in the way of hard drive, they do include a built-in camera and video recorder, and interactive features for e-books, games, art projects and music. Any kid who has watched an adult play games or surf the Web on a smartphone probably will have no trouble adapting to the new technology. That’s something parents can feel good about — along with the fact that they can now reclaim their iPad.

The LeapPad, which uses LeapFrog’s proprietary operating system and apps, has helped resurrect LeapFrog’s ailing shares. Back in early August, the Emeryville, Calif.-based company’s shares were trading in the $2.65 range. More recently the shares have been trading at around $5.50, a lot closer to their 52-week high of $6.18.

Toy manufacturers Hasbro (NASDAQ:HAS) and Mattel’s (NASDAQ:MAT) Hit Entertainment, which have penned agreements with the toymaker to distribute their digital entertainment on the platform, also might see some upside.

VTech Holdings (PINK:VTKLY) also makes an educational tablet for kids called the InnoTab Interactive Learning System. However, VTech’s telecom and hospitality products could put a damper on the company’s overall revenue and earnings growth.

When LeapFrog announces full-year earnings in February, investors will be looking for signs that demand still is strong. If the parents who couldn’t get the LeapPad this past holiday still are in the market, that’s encouraging. If those parents still are willing to pay the full retail price for the tablet, well … that’s even better.

As of this writing, Cynthia Wilson did not hold a position in any of the aforementioned stocks.


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