This column is for investors willing to take more risk and potentially receive more reward.  The stocks mentioned in this column are not recommended to buy or sell.  They're brought to your attention so you can investigate them further to determine if they fit your risk profile.  Most of the stocks will have less than $1 billion of market capitalization, have more volatility than other stocks, and oftentimes no earnings.  And some will have tremendous stories.

November 19, 2010 - LeapFrog Enterprises, Inc. (LF-NYSE) provides technology-based educational platforms worldwide. The company offers reading solutions, such as the LeapPad learning system that includes basic vocabulary and reading concepts to preschool and kindergarten children; and Tag learning system, a pen-based reading system that focuses on fundamental reading skills and offers a library of interactive books.

In addition, the company offers the Fridge Series, a line of magnetic toys designed for preschoolers and kindergarteners that teaches letter names, letter sounds, and learning songs: the Learn and Groove Series, which features bilingual musical learning toys: and Pre-school Games, a line of fast-paced handheld learning games; and Clickstart and My First Computer that introduces computer and preschool skills by turning any TV into a child's first computer.

Further, LeapFrog Enterprises provides the LeapFrog Learning Path, an online tool that helps parents track what their children are learning with its Web-connected products, such as Tag, Leapster2, and Didj.

It sells directly to national and regional mass-market and specialty retailers; and other retail stores and school-related distributors and resellers through a combination of sales representatives, as well as through online store and other Internet-based channels. The company was founded in 1995 and is headquartered in Emeryville, California.

Maybe. Especially if earnings will be what analysts expect. This year, the consensus among 5 anlaysts is for 28 cents a share after showing a loss of 4 cents last year (and minus $1.07 in 2008 preceded by a loss of $1.47 in 2007, which was better than the loss of $2.31 in 2006). The numbers should go from red to black, at least on an annual basis going forward. Traditionally (for the last 5 years anyway), the first 2 quarters are negative. This year, first quarter showed a loss of 37 cents. Second quarter was minus 20 cents. But third period earnings were a positive 24 cents (up from positive 11 cents last year). For the final period, expect 58 cents, compared to 46 cents last year in the fourth.

Management has been gearing up for annual holiday shopping with new product launches, increased spending on advertising, and better distribution channels. It's also cutting costs and achieving higher operating leverage to widen margins and bolster the bottom line.

One new product launch that looks like it will drive earnings for some time is the Learning Path. This is a free Web-based tool that allows parents to monitor their children's learning progress by uploading data from their LeapFrog toys. It's already being used by 4 million customers. The company can customize products for parents based on their children's skill levels and achievements, marketing them directly to the parents. The company sees orders from customers who are Internet connected about 30% more than customers who aren't. Management expects to add another 2 million connected customers this holiday season. This new way of selling suggests future earnings could be greatly enhanced.

The good news hasn't been lost on investors. The stock is up 30% since August. In the last 52 weeks, it's ahead by 47% while the S&P 500 index is up 8%.

More numbers: Trailing P/E is 39 but Forward P/E is 11. Price to sales ratio is .88. Price to book is 2.14. Book value is $2.75. Operating margin for the last 12 months was 4.64% and Profit margin was 2.11%. Return on equity was 5.38% while Return on assets was 4.30%. Total revenues were $431.41 million. Total cash is $21.80 million. There is no debt. Current ratio is 2.08. Beta is a remarkably high 2.48. There are 64.56 million total shares outstanding with a Float of 34.73 million. There are two classe of stock: 37.25 million A and 27.1 million B. B holders have 10 votes per share. Insiders own 7.2% of the class A shares. Institutions own 70.6% of class A shares. There is no dividend.

As mentioned earlier, this is a stock that requires a certain risk tolerance. If yours is high, then this should be an intriguing story. Clearly, the last 4 years have been difficult with losses every year. But with new products (especially the one that connects with parents who are connected), cost cuts, better distribution and operating leverage, LeapFrog is starting to jump. The stock price certainly has. Whether it keeps going will depend on earnings staying positive and growing.

- Company Web site: www.leapfrog.com

- Ted Allrich