NEW YORK (TheStreet) -- It's an exciting day around here when I stumble onto a stock that actually looks cheap.
Don't get me wrong, I like it when the markets are on a tear as much as the next guy, but as a value investor, I am not doing a whole lot of buying.
Some of my fellow value brethren will unabashedly express their hope for a market correction, providing them with an opportunity to deploy some of their dry powder. I'm not in that camp; I know that corrections will occur, but don't spend time hoping for them to happen. They will happen on their own once the gap between price and value becomes too wide. I don't believe that we are there yet.
U.S. markets aren't cheap at this point, but not ridiculously expensive, either. So it just takes a lot more time and effort these days to find compelling value ideas, which is fine with me, because I like the work.
One company that looks interesting here is technology-based learning-product company LeapFrog Enterprises (LF). This isn't a new idea; the company has hit some of my value-related screens in the past, but had fallen off the radar for a few years. The company has put up some interesting earnings numbers in recent quarters, and trades relatively cheaply on several measures, but perhaps with good reason.
Last quarter, revenue rose 4% to $201 million, and the company beat the 32 cent consensus earnings estimate by 5 cents. Revenue, however, was $6 million below expectations, and shares took an 8% haircut due to that shortfall and to a warning about the weak retail environment heading into the holiday shopping season. The company significantly cut its estimates for its all-important fiscal fourth quarter, which is expected to be reported on Feb. 3.
LeapFrog recently appeared on my "double net" screen, which is designed to identify stocks trading at less than two times net current asset value. LeapFrog trades at 1.92 times net current asset value and maintains a fairly solid balance sheet. The company ended last quarter with $78 million, or $1.14 per share, in cash and with no debt. The current trailing price-to-earnings ratio, which is less than seven, may be misleading, but the forward P/E for 2014, which is about 14.5, is certainly not ridiculous.
LF data by YCharts The fourth-quarter release could be huge for LeapFrog; that's the quarter the company typically generates the bulk of its earnings, and usually, significant amounts of cash. LeapFrog seems to have done a good job of reducing expectations for the quarter; the consensus is now calling for revenue in the $216 million range, down from $245 million last year, and earnings per share of 14 cents, down from 60 cents last year. Incidentally, just prior to the company's warning for the fourth quarter, analyst estimates were calling for earnings of 38 cents a share.
We'll know soon enough whether the company overshot it's warning, and will surprise to the upside. But as a "double net", LeapFrog looks interesting and is back on my radar. Proceed with caution.
At the time of publication, the author held no position the stock mentioned.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.
