Moves Like ZAGG-er

It was another strong quarter for gadgetry accessories specialist ZAGG (NAS: ZAGG) .

Net sales soared 131% to $67.5 million. Just half of that can be attributed to organic growth. ZAGG's acquisition of iFrogz last summer obviously juiced up the tally. However, analysts knowing the situation full well were still only targeting net sales of $64 million. Adjusted earnings of $0.27 a share destroyed the $0.20 a share that Wall Street was expecting.

ZAGG tried to tip off the pros, boosting its top-line guidance three times since the iFrogz acquisition. It wasn't enough.

ZAGG's invisibleSHIELD protective screen coverings for smartphones and tablets put the company on the map, and that single line contributed 53% of revenue. However, ZAGG continues to beef up both its product offerings and its distribution partners. The company noted that Wal-Mart's (NYS: WMT) Sam's Club grew the number of ZAGG products sold at the warehouse club threefold through 2011.

Bears zig on ZAGG
Critics often knock ZAGG, given the commoditized nature of its products, but there's something to be said about strong distribution. Sure, folks can go online and buy Asian knockoffs, but the cheap alternatives are never going to get into Sam's Club, Best Buy, or AT&T (NYS: T) .

AT&T revealed last month that it will begin stocking ZAGGkeys FLEX and ZAGGsparq. How many stand-alone keyboards and battery chargers do you think an AT&T wireless store will carry? Picture the kind of shoppers that buy their phones and tablets at an AT&T store instead of doing some comparison shopping online. Aren't they more likely to buy protective covers or gadgetry add-ons right there in the store?

It's at the moment of device purchase that buyers tend to attach the cases, protective films, and Bluetooth keyboards -- at least in the brick-and-mortar world.

ZAGG is optimistic about how it will fare when Apple (NAS: AAPL) rolls out the iPad 3. It has a wider distribution reach now than it did during last February's iPad 2 rollout, and clearly the holiday quarter's release of the iPhone 4S worked wonders for ZAGG.

Accountability check
At least one popular blogger called me "painfully ignorant and irresponsible" for my bullish assessment on the company in my "5 Stocks Under $10" last month. Well, the stock was at $8.56 then and at $6.81 when I originally singled out ZAGG in the same monthly column 11 months ago. If last night's after-hours pop sticks, I'll gladly take the 25% gain over the past month and the 57% return since last year's column.

The future is promising. ZAGG sees adjusted EBITDA growing from 21% to 32% this year to between $55 million and $60 million. It sees net sales climbing nearly 40% to $250 million, well ahead of the $240.6 million that Wall Street was forecasting.

There were nearly 9.7 million shares of ZAGG sold short as of mid-February, and that's a remarkably high number for a company with roughly 30 million shares outstanding. Skeptics banking on inventory values to be written down, margins to contract, and net sales to crumble have been burned again -- and the squeeze may very well be on.

There may come a time to bet against ZAGG. Original manufacturers may get better about making the third-party gadgetry that consumers want, the way Apple did last year with its more stylish and practical iPad 2 cases. As shoppers gravitate online they will find it easier to settle for the dirt cheap knockoffs.

However, now is certainly not the time. Logitech (NAS: LOGI) -- a ZAGG partner on the original ZAGGmate iPad keyboard -- has proven that you can carve out a profitable living selling third-party accessories for decades if you have the right gear and distributor relationships.

That's ZAGG, today.

You say you want a revolution
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At the time thisarticle was published Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.The Motley Fool owns shares of Apple, Wal-Mart Stores, Best Buy, and Logitech International.Motley Fool newsletter serviceshave recommended buying shares of Apple, Wal-Mart Stores, and Logitech International.Motley Fool newsletter serviceshave recommended creating a diagonal call position in Wal-Mart Stores, writing covered calls in Best Buy, creating a bull call spread position in Apple, writing naked calls on ZAGG, and creating a write covered call position in Logitech International. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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