Market Overview

Is iGo iDone?

iGo, Inc. (Nasdaq: IGOI) reported earnings yesterday, for the third quarter ending September 30, 2011, and shares are plunging today, down more than 12% on four times the average daily volume.

This begs the question: is iGo iDone?

Revenues fell year-over-year, coming in at $9.7 million in this quarter, down nearly 25% from last year, when revenues came in at $12.2 million. The company lost 7 cents per share, as opposed to flat earnings in 2010. The company earned $51,000 in net income in 2010, but this did not equal 1 penny per share.

CEO and President Michael D. Heil talked about the earnings in the press release. He said, "Our third quarter results reflect the increasing competition we are seeing in the power product market, which is having a negative impact on both sales and margins. As our sales mix moves more towards our new audio and rechargeable alkaline battery lines, we should be able to better offset these competitive pressures. The development of the iGo Green® technology chip remains on schedule to be completed in the first quarter of 2012, which we believe could provide a higher margin revenue stream that will improve our overall financial results."

The company had lower gross margins in the third quarter of 2011 compared to 2010, but the company was able to sell $1.8 million in new audio and rechargeable alkaline battery lines. The new line of products was announced back in August.

IGo had $14.2 million in cash and short term investments as of the end of the quarter, and no debt. The company has a market cap of just $34 million, after falling 73% year-to-date, and 40% over the past three months.

For a company CEO to say that competition is eating away at sales and revenues is never reassuring. Benzinga spoke with Todd Sullivan, fund manager Rand Strategic Partners and holder of iGoi shares to get his stake on the quarter, and the future in general.

Sullivan discussed the quarter, which he said was somewhat disappointing because of the lower revenue growth year-over-year. He said, "There is new competition in the power market. RadioShack (NYSE: RSH) has a private label, which cut into sales. The new battery and the audio line posted posed impressive growth, but it's not enough to offset the power loss."

Regarding the potential of the iGo Green® technology chip, Sullivan said that he saw huge potential for it down the line. The chip has "moved from the development phase to the production phase at Texas Instruments (NYSE: TXN), and it will start shipping sometime in March to OEM's," according to Sullivan.

Texas Instruments has approached iGo for a licensing deal to sell the chip, according to the Boston-based value investor. "Texas Instruments does roughly $3.5 billion in quarterly sales, and I have to think there's a good probability that the company is looking at the iGo chip because it believes it will meaningfully affect their bottom line," Sullivan said.

He currently holds a small position in the stock, some 25,000 shares. Sullivan did say that despite not adding to his position today, he does believe it is cheap at these levels.

The company may not be "finished," but to lose three quarters of your market cap during the year is never a good sign. Investors might be wise to wait and see if a deal with Texas Instruments goes through, or if this is another chip that gets eaten alive by Mr. Market.

ACTION ITEMS:

Bullish:
Traders who believe that iGo is undervalued and could get a deal done with Texas Instruments might want to consider the following trades:

  • The company did have impressive growth in its new battery and the audio line. That could be a big growth driver in 2012 and 2013. If the company can license its power saving chip to Texas Instruments, the royalties the company receives could be tremendous.
  • Shares could continue to fall, but traders may want to consider the name if it gets below $14 million in market cap, the amount of cash it had on the books as of the end of the quarter.

Bearish:
Traders who believe that iGo's future is more than suspect may consider alternate positions:

  • Consumers could decide that the technology is not worth it, and simply move on.

Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.

Posted-In: Earnings Long Ideas News Guidance Short Ideas Small Cap Analysis Tech Trading Ideas Best of Benzinga

 

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