LeapFrog Enterprises has been whittled down to a less than $300 million market cap over the course of the past year. Although it can be dangerous to try and catch a falling knife, there are a few encouraging signs in the case of LeapFrog.

1. Insider Buying

Insiders own almost 10 percent of outstanding shares and have been aggressively buying for years. The following chart shows the past three months of insider transactions.  

Although the stock has been selling off, it is encouraging to see those with the best understanding of the company are adding to their positions.

2. Acquisition Possibility

At the end of November, Reuters reported that several brand name funds have taken a stake in LeapFrog. Their hope is that the company will be acquired. Mattel and Hasbro are recognized as potential acquirers. With an enterprise value of $166.5 million and profits of almost $50 million in the trailing 12 months, this is a reasonable possibility.

3. Balance Sheet

LeapFrog has an enterprise value lower than its market cap because it has $111 million cash (and equivalents) with zero long-term debt. When considering the following chart, keep in mind that LeapFrog’s equity is worth less than $300 million.

4. Earnings Multiples

The forward EV/EBITDA is four versus the peer group’s 14 and EV/Sales of 0.3 versus 1.1. The price to book is just 0.7.

When considering these ratios, investors should note that earnings are down significantly over the past year. Wall Street’s long-term growth projection, however, is 15 percent.

5. Analyst Ratings

LeapFrog has no Sell ratings, nine Hold ratings and two Buy ratings. The average price target is $5.83, implying 47.2 percent upside from current levels. The Street high is $8 and the low is $4.

6. Liquidation Value