BOSTON ( TheStreet) -- Investors seeking to profit from parental ambition should investigate LeapFrog ( LF), a maker of educational toys and software.

Shares of the company, which has a market value of $396 million, recorded a 52-week high Monday and delivered a one-year return of 390%. The fourth-quarter proved a definitive turnaround in its business.

LeapFrog swung to a fourth-quarter profit of $29 million, or 46 cents a share, from a loss of $44 million, or 70 cents, a year earlier. Revenue grew 37% to $189 million. Profit spreads widened due to job cuts, and improved sales of higher-margin reading systems and software-based content. The gross margin expanded from 37% to 44%, and the operating margin climbed from negative territory to 15%.

A critical cost-saver and sales-driver is LeapFrog's new marketing system. The company slashed quarterly advertising expenditures 36% to $26 million, diverting its focus from television to trade shows and personalized online marketing. LeapFrog's Learning Path system allows parents to register online and track their children's learning progress. This feature is ideal for personalized cross-selling.

As of Jan. 31, LeapFrog tallied three million "connected" customers through Learning Path, compared with one million a year earlier. Online sales grew 18% in 2009. LeapFrog suffered full-year net losses in 2007, 2008 and 2009, but remained a liquid enterprise. Its balance sheet stores $62 million of cash, translating to a quick ratio of 2.1, and no debt. LeapFrog entered 2010 with focus, cash and operating leverage.

Analysts are optimistic about the stock. Of seven surveyed by Bloomberg, five recommend purchasing the shares, whereas two advise selling them. BMO Financial ( BMO) and Piper Jaffray ( PJC) expect the stock to rise another 13% to $6.17. It currently sells for a price-to-projected-earnings ratio of 15, a 15% discount to the leisure products industry average. It is also cheap based on book value and sales.

Major holders include BlackRock ( BLK), which holds a 4.6% stake, and Societe Generale ( SCGLY) subsidiary TCW Group, which possesses a 3.6% interest. Both investment managers enlarged their positions in the fourth quarter.

See Our Ten-Favorite Small-Cap Stocks