How Many Days and How High Can ZAGG Rise on Pokemon Go?

The Pokémon Go craze has been a boom for several companies, even outside of Nintendo. One such company is ZAGG Inc. (NASDAQ: ZAGG). The draw here is obvious: as more Pokémon Go players are using their smartphones, they are also draining their batteries faster. ZAGG sells many products, but the latest craze has been around the battery cases and its “mophie juice pack” products targeting longer phone use from extra battery times. 24/7 Wall St. wanted to take a 360-degree view on ZAGG and its move from Pokémon Go, showing how this could keep rising and what might also make ZAGG come back down.

Investors often have wondered how far one topic can take up a company’s stock. In the case of ZAGG, that remains an issue of beauty being in the eye of the beholder. 24/7 Wall St. would warn investors and speculators alike that crazes like this can have legs longer than just two weeks. Many companies saw their shares run higher from Pokémon’s debut and explosive growth in the late 1990s, and some of those gains took place over a staggered schedule that was not just two weeks.

ZAGG shares have run handily over the past two weeks since Pokémon Go took off in the United States. We are not going to delve into whether this can continue — again, the past Pokémon rallies were staggered.

ZAGG shares were under $5.00 on the second trading day of July. By July 20, the stock had risen to above $7.00 for a close of $7.25. The following day was down one cent, but what has happened is that the trading volume peak of 4.39 million shares was the day before the share price peaked (July 19 at $6.85).

[nativounit]

One thing that may be worth evaluating this move is the total dollars chasing this trade. Nintendo is a more provable beneficiary (as part owner), and its OTC-listed shares more than doubled. ZAGG shares have risen about 40% from the Pokémon Go craze ties, but the dollar volume on the peak volume day of 4.39 million shares was still representative of just $30 million or so of total stock bought and sold that day.

When new crazes and trends emerge, share prices often uncouple from a realistic growth target. Whether that has been seen remains up for debate. A gain of 40% in a stock may seem excessive on the surface, but when a company’s market cap is only $200 million, it is smart to throw what might seem like rational math out the window.

Speculators can drive stocks far higher than rational betters might think is fair. Another consideration is that even a price fight around $7.25 only compares to a 52-week range of $4.71 to $12.74. The stock market has risen for about nine days, and if ZAGG closes at $7.26 or higher, then its gain will have been up eight trading days in a row.

Yahoo! Finance also shows that over 82% of ZAGG shares were owned by institutions and mutual funds (including exchange traded funds). This leaves a very small free float for investors to chase.

Roth Capital Partners issued a ZAGG report on July 14. That report showed how ZAGG is benefiting from the Pokémon Go craze but it only came with a $6 price target. The firm’s Dave King called ZAGG a short-term beneficiary, as follows:

We estimate a ~15% boost to EPS that may prove somewhat temporary, following our checks of ~50 retail locations and web trend analysis that revealed increased power management product demand. Longer-term, however, it appears other brands are taking share at mophie’s expense. We remain at Neutral with a new $6 target to reflect our concerns surround the mophie acquisition and worries about declining screen protector attach rates, stronger sell-in than sell-through, slowing device sales, and device-markers offering more accessory features.

Our checks of various Apple, AT&T, Best Buy, Target, and Verizon stores across the country indicated a surge in demand for power management products, including battery cases. More than 35% of the ~50 retail locations we surveyed noted increased demand and many specifically cited the popularity of Pokémon Go. Some pointed to a typical seasonal increase and the vast majority noted sufficient inventory and had not yet increased orders.

Roth’s endgame is that this rising tide lifts all boats, but longer term questions linger. Other battery life extenders were favored, and the firm pointed out how user fatigue has been around prior games.

[wallst_email_signup]

On last look ZAGG shares were up at $7.13 late Thursday morning. This is one of those stories in which you could just as easily argue that it could run to $10 as you could that it should fall right back down.

ZAGG will not be hosting its second-quarter earnings call until August 2, 2016. That being said, the Pokémon Go launch took place after the June 30 quarterly end cutoff date. Whatever Pokémon Go is adding on will be discussed when the company talks about its guidance, unless it makes a release sooner rather than later.