The Elevator Pitch

Leatt is a small company aiming to grow significantly by expanding into more products and end markets by continuing to invest in R&D and raising the value and awareness of its brand. It has strong insider ownership, the founder remains active in R&D, and the business has the ability to benefit from operational leverage going forward. The business quality is good, the management appears to be strong and the price today seems good to reasonable.

What They Do

Leatt outfits athletes from head to toe with protection. Initially starting with a neck brace for motocross, the company has spread out and broadened its horizons to more gear and more sports. It now sells helmets, knee braces, gloves, chest and body protection, goggles and other tangential equipment and apparel. It designs its own products with the leadership of its founder, Dr. Chris Leatt.

Its products are mostly manufactured in China through contracts with vendors and it has distribution all over the world through sellers and distributors and online via its own store. Its main office is headquartered in South Africa but it has offices in California to support North American sales. It plans to continue the expansion of its offerings to more products and to more sports to support growth and the brand.

“Our plan is to continue to develop innovative, cutting edge products; move into high velocity winter and team sports; and address a broader range of bicycle and other popular helmeted sports”

- Mission and Strategy statement from Leatt Corp website

The business is traded on the OTC as LEAT. It has a market cap of 170 million USD and an EV of 160 million USD (roughly as of time of writing).

Business Quality

The business enjoys gross margins around 45%. Cash flows from operations have grown as the revenues have grown. The business has been investing in R&D consistently over the past decade and it appears to be paying off with very good sales growth.

It appears that the focus on expanding the product line to support continued revenue growth has been working as the returns on equity and invested capital have increased nicely over the past couple of years. This is likely a good demonstration of the business getting to scale. It is benefiting from some operational leverage; the cost of R&D being relatively fixed and the brand awareness growing as the sales increase, allowing more of the revenue to go to the bottom line without significant ramping of costs.

As can be seen, there is a wide offering of protective gear that shares the bulk of the revenues currently. Body armor and knee braces bringing home the bulk of the sales while others contribute significantly.

The Industry