Green Light for iGo (IGOI)?
Image from www.mydigitallife.info
iGo [IGOI] is a company that focuses on power management solutions. Their products consists primarily of eco-friendly chargers for personal computers, laptops, netbooks and mobile devices. iGo’s stock caught my attention as a “cigar butt” (a term Benjamin Graham used to describe companies whose stock price was selling below its book value) as the company had $1.24/share of cash with no long term debt, but was selling for less than $1.24/share. With iGo’s recent release of their fourth quarter results, I wanted to see if iGo would be a stock that would get a green light. I read iGo’s 2009 annual report and listened to the Needham conference audio from January 2010 as well as the company’s most recent conference call and here’s what I found.
iGo’s Stock Has Been Flashing Red
It is important to note that iGo has experienced declining revenues for the past 3 years now. The decline in revenue is due primarily to the loss of private label reseller sales from its account with Targus. In March 2009, Targus decided to not renew its distribution agreement with iGo. The distribution agreement ended in May 2009. Targus accounted for 42% and 21% of iGo’s sales in 2008 and 2009 respectively so in essence iGo lost its largest customer. The stock’s performance over the past two years has reflected these disappointing setbacks.
Image from finance.yahoo.com
What follows is a chart of iGo’s revenue for the past three years. I have broken the revenue figures down by 3 product categories (High Power, Low Power and Other). High Power refers to sales from products for portable computers as well as surge protectors. Low Power represents products sold for mobile devices like smartphones, digital cameras and portable game consoles. Other is also referred to as the “Connectivity” group in their annual report and reflects sales from expansion and docking products and other miscellaneous accessories like keyboards, etc. You can see that revenue has decreased overall and notably revenue from the High Power line of products has fallen the most.
Image from google docs
The following chart breaks down the sales of each product group as a percentage of overall sales. We can see a trend where iGo is deriving most of its sales as a percentage from the Low Power Group. Its difficult to predict whether or not these trends will continue. However, the IDC reports cited in the company’s 2009 annual report on page 5 highlights the portable computer market (and I’m guessing most of the High Power Group’s products fits in that market) as having the highest expected CAGR for the next four years (15.4%) of the three market categories (Low Power Mobile Electronic Devices and Handheld and Converged Mobile Devices as the other two). This implies that iGo needs to reverse the trend in declining High Power Group revenue sales and take advantage of the fastest growing market segment for its products.
Image from Google docs
iGo’s Stock is Showing Signs of Turning Green
Despite the company’s loss of the Targus account and the battering the stock has taken these past five years, the company has managed to still retain $1.24/share in cash with no long term debt. The company has also taken steps to reduce cost and did not report a fourth quarter loss for 2009 as the analysts had been expecting. Recent positive events over the past year include:
- 3 new products recently introduced for its High Power Group segment (an iGo netbook charger that was voted one of the top 100 products by PC World last year, iGo Green Laptop Charger that was mentioned favorably in a Wall Street Journal article and an iGo charge anywhere device with an internal lithium battery to charge mobile devices should a power source not be available).
- Improved margins from 24.8% in 2007 to 33.1% in 2009. This has been largely the result of the company’s focus away from private label reselling and OEM contracts towards direct retail sales
- Getting its products to major retailers like Frys, Verizon, Office Max and HHGREGG
- Growth in Europe by getting its products in more stores (from 500 to 3000 this past year)
- Resigning Belkin distribution agreement (Belkin is now its largest private label reseller)
- 2 pending patents that have been fastracked for possible approval by the U.S. government. If approved, this will potentially allow iGo to license its vampire power technology
- Possible stock repurchase strategy with cash reserves (this was brought up around minute 20 of the Needham conference audio presentation)
- And arguably the biggest news thus far this past week- the go ahead from Walmart to sell its laptop charger products after a successful pilot phase
Summary
iGo has shown signs of life this past year and its stock, which is trading near book value on a cash basis, may be worth a look. To be fair, iGo has been open in disclosing the challenges it faces and potential adversely impacting events including:
- They still derive a large percentage of their sales through a few accounts. Currently, Radio Shack is iGo’s largest retail presence (38% of total revenue in 2009). Should Radio Shack decide to discontinue carrying iGo’s products, iGo’s revenues will drastically fall
- They have many competitors (Belkin, American Power Conversion, Comarco, Lind, RPC Power Solutions) that are able to manufacture and sell similar products at a low cost
There were some other minor notes about the possibility of being delisted from the NASDAQ should they not find a board of director replacement for Larry Carr who resigned in October 2009 for health reasons. There was also the mention of maybe having to issue more common stock to meet currently outstanding options and warrants.
iGo also faces a difficult challenge in marketing the need for its products. According to their website, they are the only company with a vampire power technology that knows how to conserve energy for electronics that remain connected to a power source. Yet, the products may be selling at a premium against other power adapter products and the typical consumer may not be willing to pay extra to purchase iGo’s products. To this end, iGo has been increasing its marketing budget and diversifying its advertising channels. For example, check out their marketing website vampirepowersucks.com as well as a free downloadable iPhone app to measure your vampire power consumption.
The positive impact from the Walmart sales and the three new products may not show up in the company’s operating results until the middle of this year so iGo’s stock may continue to hover around its current price until then. Still, given the recent string of positive news and its strong balance sheet, iGo is a stock that seems very attractive as a value play that could potentially turn out to be a multibagger.
Disclaimer: I am long IGOI. The analysis provided by this article is not a recommendation from me that you buy IGOI. Please do your own further research and know that small cap stocks like IGOI have more inherit volatility and adverse events could result in significant losses to your stock portfolio.
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Mr. Nice Geek » Multibaggers in the On-Demand Sector? — March 28, 2010 @ 1:14 PM
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