Posts Tagged ‘netnet’

IGOI: Should I stay or should IGO?

Friday, September 25th, 2009

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:

  • I bought this stock because it was a net net. It is now trading above the estimated liquidation value.
  • Company has winded down their contract with Targus (largest customer) which accounted for approximately %40 of revenue
  • IGO does not have a good track record, however newer management is showing it knows how to control costs.
  • IGO just announced their new small universal netbook charger will be sold in Verizon stores in the coming weeks
  • IGO is working on a new product line of power strips that will automatically manage vampire power loads. Using a patented circuit that detects vampire loads and powers off the outlet.
  • IGO is aiming to be a power management solutions provider and hoping to sell their new products like power strips to corporate enterprises.
  • IGO is attempting to make their patented “tip” technology for swappable power supply tips a defacto standard. If this happens they can license their tip design to other companies and rake in the dough

    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:

  • Both Targus and Belkin had end cap displays for their universal laptop chargers.
  • On the wall of the universal chargers IGO has two slots among 15-20 products, competition is tight.
  • While at Fry’s I watched two different parties buy laptop chargers both went for the cheapest one available
  • Belkin already has power strips targeted at vampire power in the store. They don’t automatically switch off. Instead they have a tiny remote that allows you to power off all vampire outlets on all power strips from one place. While not as slick as the solution IGO is working on, they are most certainly ahead of the game in getting product out and most certainly working a product that does what IGO’s will do.
  • I perused the wireless phone charger section since IGO makes products in that space. No IGO phone chargers at Frys, but it was still time well spent because it reinforced in my head how much a of a commodity market phone chargers are.
  • Finally I decided to plop down $70 for their universal laptop charger with tip technology. I can always use an extra laptop power supply and it would give me a chance to evaluate their product.

  • 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.

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    Posted in Cigar Butts, Value Investing, stocks | 7 Comments »