Disclaimer: Not financial advice, do your own research, I may own, buy or sell stocks mentioned in this article at any time, etc.
This post was written in Late February - I never posted it due to poor trading liquidity. Two quarters have since passed - I haven’t updated the post. 1Q results today were confirming and the trading liquidity has improved, so I am posting it. I am still quite bullish at $12.
I recently bought a small position in LEAT. The name is probably familiar to MicroCap investors from the 2020/21 era. Liquidity is poor and it is OTC listed so it will remain small. I don’t think that much needs to happen to retrace its $30 highs. The 3Q earnings miss seems to have been a timing issue and I expect that 4Q25 will be strong with momentum continuing into 2026.
I have not been able to speak with management so I am a little in the dark on this name. Given the small position size I’m okay with that. My conviction isn’t super high - but with a strong balance sheet and some business momentum, I particularly like the risk/reward. If the stock works, I think I can make 3-5x. If not, I don’t think that I will lose much.
Brief Overview and History
Leatt is a Motocross (MOTO) and Mountainbiking (MTB) gear manufacturer based in South Africa and the US. It has quite an interesting history. Founded in 2001, the company invented the first “Neck Brace” for motocross riders. The product went viral and Leatt sprung to global recognition in a very short period of time.
By 2010, the company had >$10m in revenues in Neck Braces, but Dr Leatt saw that other parts of the safety apparatus for Motocross were also lacking. Leveraging Leatt’s brand recognition for safety and innovation, he saw the opportunity to carve out a niche of selling premium, highly-engineered products for the safety-concious. The company’s motto was: “the business of selling safety.”
Since 2010, the company iteratively released body armour, knee braces, helmets, gloves, goggles and apparel across MOTO and MTB to become a full-body protection company. Leatt always brought products to market with a new innovation, such as ADF foams used in body armour (additional lightweight and comfort without compromising protection) and the C-Frame structure of their knee braces (less-bulky kit without compromising structural integrity).
What’s most intriguing about Leatt is that they seem to have built a repeatable muscle for R&D-driven, product-led-growth. The Leatt Lab in Cape Town has consistently created new, differentiated products that have driven Leatt from a single product into a full body protection company. The company grew from ~$14m of revenue in 2010 (all Neck Braces) to nearly $40m in 2020. All the while, Neck Braces shunk to just $5m as their early monopoly ultimately attracted competition. Today, Neck Braces are just ~5% of the company’s revenue. It’s quite an impressive track-record of product-led growth arcoss multiple categories.
Like most outdoors-exposed consumer companies, Leatt took a royal beating in the post-covid slowdown. Inventory gluts, distributor bankruptcies and aggresive discounting through 23/24 added insult to injury. All the while, Leatt continued to invest in the business, increasing its operating expenses as top-line capitulated. Unsurprisingly, the company went into the red and the stock is down 70% from its highs. It has largely been left for dead with dismal trading liquidity - a forgotten hero of the covid-era 10x club.
However, after studying the company somewhat, I believe that Leatt has a very bright future. Not only have end-markets bottomed and margins recovered, but multiple growth drivers put into place by management over the past few years appear to be reaping rewards. My industry work also suggests that the brand’s fundamentals have only strengthened throughout the downturn. They also seem to be on the cusp of a new growth driver from Adventure Riding with extremely promising early signs.
Below are the key points of my thesis.
The company remains on sound fundamental footing. Cyclical recovery is underway My main goal was to determine if Leatt’s revenue decline has been purely cyclical or if the brand has suffered damange. I visited a handful of retail outlets in the US and Australia to chat with retailers about the company. None had anything but positive things to say about Leatt, chalking up their weak revenues to an industry downturn that has hit everyone.
Interestingly, Racer X magazine (large Motorcross publication) runs an annual survey of readers asking which gear they own. Between 2021 and 2024, Leatt grew its share in every single category that it was represented in the survey.
Leatt’s gross margins have historically been strong in the mid-40s, but took a hit during FY22-24 through a wave of excessive discounting to clear stock in a flooded market. This called in to question if the company’s historic pricing power would still hold. Encouragingly, gross margins have also shown a strong march back towards the mid-40s as the inventory clearance discounting has abated and fresh products are working their way through the channel.
Online reviews of the brand also remain extremely positive and they continued to win product awards at the coveted EuroBike conference in 2025. All of this is to say that there doesn’t appear to be any structural impairment of Leatt’s brand - an encouraging sign.
TTM reveues (better as sales can be lumpy due to seasonality and sell-in/out dynamics) for the US and International have both clearly bottomed and are on a recovery path, albiet still at emperically low levels as the consumer remains weak. The company appears well positioned to continue to benefit from a recovery in demand.
Increased spending appears to be reaping rewards From FY21 to FY24, the company’s revenue fell ~40% whilst R&D and SG&A spending both increased ~40%. The investment has largely gone towards bolstering the sales team in the US, increasing D2C presence and fuelling the ADV product expansion. There are clear signs of these investments bearing fruit.
Firstly, sales in the US began to recover sharply in 2025. 2Q25 likely benefitted from a tarrif pull-in, however the trend on a TTM basis is clear. Leatt has installed an almost entirely new sales/marketing team in the US over the last ~12months and the investment appears to be working.
The D2C strategy is also bearing fruit for Leat. Whilst still small, D2C revenues have more than doubled over the last 5 years whilst group revenue has fallen meaningfully. It has increased from ~5% to nearly 10% of revenue. Whilst still small, it is growing fast and as a size now that it can meaningfully move the dial for the company. D2C also comes it at appreciably higher margins.
The third large investment from Leatt is the ADV range, which deserves its own point entirely.
The new ADV range is Leatt’s fastest-ever growing product line Leatt introduced a new range of products for the Adventure Riding market in late 2023, hiting dealers in early 2024. In typical Leatt fashion, the company brought a new “safety focussed” approach to the adventure riding market with the same level of comfort required for long range rides. The intial range was limited, including just gloves, boots and apparel. The initial launch was a huge success, and by 3Q24, ADV already accounted for ~8-10% of Leatt’s revenue.
In late 2024, the company expanded the range further to include helmets, protective gear and boots. By mid-2025, the ADV line had already increased to ~15-20% of group revenues, approaching ~$10m in annualized revenue after just 18months. In early 2026, the company announced a large expansion to its existing line including new product tiers and technical upgrades to some cateogries. With product momentum continuing, I would expect that growth should continue strongly into 2026.
Even today, the line-up is quite immature with a small number of SKUs compared to competitors, suggesting that there’s more growth in the existing line-up to come. It is also not available worldwide yet - I contacted a few local Adventure stores in Australia and they mentioned that the gear is not yet available but coming soon.
I also polled some folks on the ADV Rider reddit. Feedback on the products was unanimously positive albiet admittedly anecdotal.
I also spoke with a former employee who had this to say:
ADV is a massive market and they have started the right way. Jackets, pants and helmets are stacked with value and designed in a different way setting them apart from most competitors. A big challenge and opportunity is going to be marketing. Moto and MTB have racing, ADV is more about community. So it means connecting to your customers in different ways than they would be used to.
They have all the basics in place, including personalities. What I have always felt is that ADV requires more unconventional marketing, like finding a place in riding clubs, events and chat boards. Maybe even hosting events or riding workshops as a marketing tool. Leatt finally has a new marketing director and is busy changing up how marketing is done, so these unconventional methods might just be around the corner.
Leatt’s ADV products appear to be resonating well with customers. If the momentum continues, ADV could be a very meaningful contributor to growth over the coming 2-5 years having gone from 0% to 20% of revenue in the short span of 2 years.
ADV’s meaningful revenue contributions over the last 2 years also suggests that traditional MOTO and MTB end-markets are still quite a bit more depressed than they might appear, given the still weak consumer in Europe and the US. True MTB and MOTO demand is still probably pretty close to trough levels, albeit the major destock is past.
The company should experience meaningful operating leverage as revenues grow As noted, Leatt has continued to invest in SG&A through the downturn which has depressed their earnings. However, the cost-base is now in place to scale the business up to $70-80m in revenue. The CEO outlined this on the 1Q25 earnings call:
“We can get to $70 million to $80 million of sales without having significant increases in our OpEx. So we’re setting ourselves up, obviously, for future growth.
In terms of our sales team, we’ve actually been working really hard in the U.S. to make sure that we are a lot more efficient in terms of sales structuring there. We bought Rob Ramlose on as a VP of Sales on the MOTO side, working with the brick-and-mortar dealers and the brick-and-mortar reps. And I think that’s going to add a lot of efficiency in terms of our sales.
So I mean, to answer your question, the kind of OpEx that we’re sitting on now, $20 million to $21 million to $22 million, I think we can still leverage that significantly before needing to go to any kind of much higher level. So we are building a base now really for future growth.”
Opex is currently run-rating at ~$21-22m/year and revenue for FY25 will land in the ~$62m-ish range. If the company can return to $80m in revenue at 45% gross margins on a fixed OPEX base of $22m, the company should be able to generate ~$14m of operating profit or ~$11m of net profit.
This is ~$1.75/share of EPS power on a current stock price of $9 with $2/share of cash on the balance sheet. With an active repuchase program, I have no problem crediting the company for cash on its balance sheet. This puts the stock at an ex-cash P/E of ~4x, or ~3x EV/EBIT. Even if it re-rates to 10x P/E, it’s at least a $20 stock from here.
This doesn’t seem like such a stretch. $80m in revenue is only ~30% higher than the FY25 level and is still well below the $100m peak that the company achieved during Covid. In FY25, they will register ~40% revenue growth over FY24, albeit off quite a low level. It’s not hard to imagine how a little recovery in the consumer and continuing momentum of the ADV line could get the company to $80m in revenue in FY26 or FY27.
For the dreamers: If we really get a cyclical recovery and the ADV lines strong growth continues, it’s not unreasonable to think that Leatt could re-trace and surpass the $100m revenue milestone. If we assume a ~$25m OPEX base at this revenue line, Leatt could generate ~$2.50 of EPS. For a growing, niche consumer business like this, a 15x P/E multiple is probably not outside of the realm of possibility, which would put the stock at ~$40 - or a 4x from here. We’d probably see a Nasdaq listing as well. You really don’t have to believe that much to see a >4x in LEAT.
If I’m wrong and growth stalls out, it’s hard to see too much downside. The stock is currently trading at ~12x FY25 P/E (trough levels) with >20% of its market cap in cash and 40% revenue growth this year. I’d imagine that at worst the stock is dead money, unless we have a severe recession which pushes the company back into the red, at which point it could probably head back to the $6/7 dollar range that it hit back in 2024.
Summary
The stock just isn’t liquid enough to warrant spending time/resources on boots-on-the-ground research. If I could get in touch with management I would perhaps feel comfortable having a bit of a bigger position. However the position will remain small and I look forward to following the company’s progress in the coming quarters.
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