IGOI: Should I stay or should IGO?
IGO (symbol IGOI) devlops and markets power accessories for electronic devices such as laptops, mp3 players and mobile phones. See their corporate website for a more detailed company description.
I initially learned about IGO from an excellent post on OldSchoolValue.com. At the time it was trading below its liquidation value making it a cigar butt with at least one good puff left as long as the management did not blow all the cash. The management has shown good signs of cost containment and even increased it cash position despite dwindling revenues.
I bought IGOI at $0.58 and while it has traded above my cost basis for the majority of the time I held it, it recently jumped up as high $1.30. Looking at almost %120 gain in 6 months I decided to reevaluate my position and see if I should continue to hold to this company now that it’s trading at a premium to what I believe to be its liquidation value.
I decided to evaluate the pros, cons and facts:
Most of this information I had learned from their most recent conference call so I decided to go back and listen to it again. I have to tell you when I listened to the call the second time I started thinking about the possibilities of the new products. I was caught hook, line and sinker. Supposedly their new power strips will be the only product on the market that can auto detect and shutdown vampire loads, they have a patent pending on the circuit design. To boot netbook sales are good so their new netbook charger could be hot. This turn around could be a 10 bagger easily!
After the excitement wore off I decided to take another look at the situation while not intoxicated by thoughts of 10 baggers. A couple of things came to mind right away, one is Warren Buffets opinion on turn arounds.
Turn-arounds’ rarely turn around
Yes IGO sitting a world of opportunity but that does not mean that they will be able to capitalize on it. Being in the tech industry I have worked for companies that have had great ideas and products but still don’t succeed. Vampire loads are just beginning to get media coverage and its uncertain if consumers will be willing to pay a premium to shave a few bucks a year off their power bill.
A day or two before going through this exercise I was flying back to Seattle from a business trip and I read Peter Lynch’s book “One Up on Wall St.”. Peter is a big of fan of hands on investment research. I decided to listen to him and see if the proof was in the pudding. I had do to hit the streets to do some investigation. Unfortunately my local Verizon store does not yet have the netbook chargers so I couldn’t ask them about initial sales or even buy one to evaluate it. Next I decided to go Fry’s Electronics and see if I could buy one of their universal laptop chargers.
Here is what I saw at Frys:
After this research trip it makes perfect sense to me why IGO has done ok at Radio Shack and the ATT store where there product is the probably the only choice. They had no marketing Frys, a sales person is going to take you right to Belkin or Targus. If you don’t talk to a sales person you will probably just buy the cheapest thing you find.
As far as new products like the vampire load power strips, from what I have seen I don’t think IGO will be able to effectively educate the customers as to why their product is better. In my opinion IGO runs a risk of not being able effectively execute their new strategy.
If you own a stock that sells in retail, visiting a store and looking at their product and how its displayed can be a really big eye opener. So that is why I decided to take my profit while it was there, I felt if I held on any longer I would be speculating.
Disclosure: I sold my IGO position two days prior to writing this article.
Tags: Cigar Butts, electronics, hands, IGO, IGOI, investment, netnet, on, research, retail, speculation, turnarounds, value
September 25th, 2009 at 9:20 pm
Interesting post and research Ken.
I do agree that power supplies are a commodity. I bought a Targus one on sale a while back and realised that it was actually an IGOI product.
Lost the tip to my home computer though…
Also I’ve been considering selling as well but if there is news that a company will be able to increase sales and gain traction, do you reassess the company to update the intrinsic value based on the new scenario?
What I’ve realised is that value investors sell way too early. IGOI won’t be a 10 bagger but I’m thinking of a strategy where I use trailing stops once it goes beyond my sell price. If it keeps running up, let it go but if it drops below the stop, it sells.
Jae Jun´s last blog ..What’s going on at OSV
September 25th, 2009 at 9:43 pm
Good points Jae. I agree that if a net net investment seems to have potential as an on going concern then one should reassess the situation to see if the intrinsic value has changed.
In my case what I saw when I reassessed the situation is that IGO has seen the last of the Targus revenue and they are now venturing into uncharted waters with new products and technology. Some of the near term questions are, can the web site sales and netbook adapter sales make up for the lost targus revenue? Will the vampire power strips take off before larger competitors have a similar product? There is a lot of uncertainty there.
The vampire power strips are very interesting and the IP behind them is interesting as a potential source of value. However I found it hard to imagine that they could make a product that Belkin or another huge company could not imitate and Belkin already has a product addressing that need, albeit inferior in features. True they have patents but analyzing patents is out of my circle of competence. It seems like they have had a hard time marketing and reaching customers on their own and while it sounds like they are trying to change that I am not confident enough in their ability to turn it around.
It will be interesting to see how the netbook adapters sell. If they is an indication that they are selling like hotcakes and the price happens to come back down to $1 or less I will take another look for sure.
I also have one other small piece of IGO research that is not all that ground breaking but somewhat interesting that I will publish in a later post.
Ken´s last blog ..IGOI: Should I stay or should IGO?
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