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Hey ECO- here are some quick assesments of JAKK's valuation.

* If JAKK had the same PE as the S&P 500 it would be around $47.

* The same Price to Sales as the recreational products industry would make it $42.

* The same Price to Book as the industry would make it $72.

* The same Price to Cash Flow as the S&P 500 would make it $42.

* Assuming a 15% long term growth rate (as opposed to the 30-60% it's been growing at), the stock in my estimation is "fully valued" around 28 times earnings or $46, a "decent buy" around 20 times earnings or $33 and a "screaming bargain" at 10 times earnings or $16. This is based on the earnings payback at that growth rate being 11 years, 9 years and 6 years respectively.

The key for JAKK is that their earnings dropped last quarter even though their sales rose. This is probably due to some growing pains from all the acquisitions and it's probably a temporary thing. In the long run, though, you want to see earnings grow faster than sales or at least keep pace.

Overall, though I think the company is doing a fine job in a very difficult market. Don't be surprised if one day the stock sells for a premium. It's not unreasonable to expect that the stock could be $50 to $120 in 5 years.

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Thanks for your thoughtful assessment. It seems my valuation is a bit conservative.....

I am also taking into account that JAKK has been growing through acquisitions rather than organically. Sometimes when growth is through acquisitions their is an occasional stumble....

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Growth is growth. Organic growth is more predictable and sustainable than internal growth.

Consider 2 drug companies. One has a profitable product, makes money and uses the money to buy other companies making a profitable product.

The other has no marketable product but a team of people are staring into microscopes and if they come up with the cure to cancer, they'll make billions.

Some people would rather have the 2nd company (obviously since many biotechs are selling for 1,000 times sales AFTER the "shakeout".) I'd rather have the first company. Even if XYZ Biotech labs comes up with the cure to cancer it will still be marketed through JNJ SGP BMY MRK or some other big company.

It's the same with toys. Hasbro and Mattel had some hits of their own to start the cash flowing. But they became multibillion dollar companies through buyouts. I'd rather buy Monopoly and Scrabble than try to invent my own phenomenon.

As for the valuation, I too would bail after a certain point. I would want a margin of safety. It's sufficient to say that JAKK's price right now is eminently justifiable through its fundamentals. However, there's nothing wrong with taking profits.
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I feel that organic growth is always better. There is none of the problems that can be asociated with growth through acquisitions.

Such as:
1.)Administrative, managerial, manufacturing, etc. redundancies

2.)Over-payment of goodwill and/or other intangible assets

3.)Unsuccessful integration of products and/or services

4.)Lack of innovation(Breeds laziness on part of management in
finding new and creative directions for growth).

5.)Also...You tend to inherit the culture of company being acquired,
thereby diverting energies from management that could be used on
productive issues, to focus on staff acclimation(To new culture).

6.)I am sure we can go on and on with these problems,but I am getting

7.)Oh yes, 1 more before I go....As the company grows larger(through acquisitions)each subsequent acquisition needs to be that much larger in order to sustain a historical growth rate....Herein lies a fundamental problem with inorganic growth, it's eventual unsustainability.

Good night,will continue after I get a nap.....

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Hi, thanks for your insight. I just bought $10,000 of JAKK. I hope you are right, but I won't you hold to it. By the way, I got a Battle Bot at Walmart. They are cool. JAKK did a great job.
fool on
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