August 15, 2007

On Jakks

JAKKS is a toy maker and works with a number of very recognizable brands, such as WWE, Dragon Ball Z, Rocky, Pokemon, and SpongeBob SquarePants. The recent trouble started when the company announced its second-quarter results. Although the company said it is well-positioned for the second half of the year and confirmed its full-year outlook, earnings for the second quarter fell from the prior year and were short of what Wall Street expected. Investors weren't exactly tickled and drove the stock down 15% the day of the earnings release.

It hasn't been a walk in the park for JAKKS since then, either. Competitor and toy superpower Mattel recalled toys (twice!) made in China because of lead-paint concerns. This has likely left investors wondering whether there is the potential for a similar event at JAKKS or other major toy makers.

Recent lumps aside, the company has been a solid grower over the past few years and has delivered steady profit margins. At this point, Wall Street analysts -- who, at least before the most recent quarter, seemed to underestimate the company -- think that JAKKS could continue to grow a bit above 10% per year for the next five years. Best of all, based on management's estimates of 2007 earnings, the stock can currently be bought at a price-to-earnings multiple of just over 9.

One of CAPS' top players, tenmiles, gave JAKKS the green-thumb-up back in late July after the earnings call. Tenmiles suggests "[using the] sell-off to start building a position in JAKKS ... the company offers relatively attractive value [opportunity] at these levels."

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