Seeking Alpha Article Triggers Sell-Off in ZAGG Before Earnings

A detailed Seeking Alpha article suggesting that small-cap company Zagg, Inc. (NASDAQ: ZAGG) may be inflating their sales numbers sent the stock plunging at the open on Thursday. After opening the session at $12.58, ZAGG fell all the way to a low of $10.84. The stock has since recovered, but is still down nearly 9% on the day at $11.80. The author of the article, Nicolas Pardini, whose profile says that he is the managing partner at a long/short equity hedge fund called Nomadic Capital Partners, basically accuses ZAGG of cooking the books - a rumor that has been whispered before.

He writes that "After an extensive nationwide channel checking, conducting representative surveys, interviewing ZAGG's partners across the value chain, and breaking down their business model, ZAGG falls woefully short of its projected earnings. ZAGG is not selling enough products to match its revenue estimates, the revenues they do take in fail to make the company profitable, and inventory amounts are excessive for a product that can be produced as quickly as a screen protector.

Zagg is the maker of the InvisibleShield screen protector and other peripheral products for smartphones and tablets. The company often trades as a derivative of Apple (NASDAQ: AAPL) and the stock has been rallying since AAPL's most recent blowout earnings report. Despite the company's apparent success, the stock is up 136% over the last 5 years, there have always been questions about ZAGG.

This can be noted by the persistently high short interest in the stock. In recent days, as much as 46% of ZAGG's float had been sold short. This is a pretty big red flag, but ZAGG has always been heavily shorted - with varying results for the short-sellers. The company is set to report earnings after the closing bell on Thursday. Wall Street analysts have consensus EPS estimates of $0.15 on revenues of $52.03 million. Interested investors should check the after hours quote in ZAGG shares and watch the stock trade tomorrow. This earnings report should give some indication of how the Street is going to view the stock going forward.