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Stocks J / Jakks Pacific

URL:  https://boards.fool.com/more-startling-research-13454439.aspx

Subject:  more startling research Date:  10/9/2000  10:31 PM
Author:  ejandresen Number:  259 of 558

On October 9, 2000 JAKK started at 8 1/4, fell 14% to 7 1/8 and then rose back to its original starting point before lunchtime. That's a 30% swing in only a few hours. Some stocks don't have that kind of trading range in the course of an entire year. (Not lately though thanks to the evil day traders).

Usually when a stock drops 14% in an hour it's because some earth shattering news is developing. Either the CEO is about to be arrested for stock fraud or he's run off with a topless dancer. But in this instance there was no news all day. Nevertheless, I bumped around the internet and my local Toys R Us and came up with some startling facts.

For one, JAKK is apparantly an actual company. They really are situated along the Pacific Ocean in Malibu California and they really manufacture toys. "Toys" are miniature replicas of people or things that are played with by children. "Children" are miniature versions of adult human beings. They are similar to stock traders except their attention span is usually longer.

JAKK made millions with its hugely popular line of WWF action figures. It used this money to buy half a dozen other toy companies and is now well diversified with lines that appeal to every toy consumer of any age and gender. They have toys for babies and toddlers, toys for adult collectors, and even toys for boys and girls. Rather than rest on their WWF laurels they have been aggressively courting liscencing agreements from all sorts of TV shows, Movies, Books, Video Games and other Pop Culture phenomena. Besides WWF they have major or minor agreements with Charlies Angels (the movie), Harry Potter, Road Champs, Powerpuff Girls, Schwinn, Elle Magazine, Extreme Sports, and dozens more. Additionally, they have developed Goooze and a line of G.I.R.L. dolls that is going head to head with the mighty Barbie.

Now I'm not saying all these lines are going to be the next Pokemon. But it indicates to me that JAKK is aggressive, scrappy, and hungry to climb up the ladder to toy company superstardom.

They appear to be halfway there. A recent eBay search I conducted for JAKK* yielded nearly 1,000 items for sale, compared to 5,000 for Hasbro and 7,000 for Mattel. By comparison, a similar search for Xilinx yielded only 1 hit, and it sells for 40 times earnings.

There are two things I look for in a stock: quality and value. I know it's unfashionable right now to look at a stock's fundamentals or price before you trade, but I'm kind of silly that way. I define quality as such: The more good things you can say about a company compared with its competitors or the broader market, the better it is. The more things the market and the competition has over your stock, the worse it is.

Going to Multex.com, I find that JAKK beats the recreational products industry, the consumer cyclical sector AND the S&P 500 in 29 important categories:

low P/E ratio, low P/S , low P/B, low P/ tangible Book, low P/ Cash Flow, High % institutional ownership, low dividend payout ratio, high 1Q sales growth, high 1 year sales growth, high 5 year sales growth, high EPS 1Q growth, high EPS 1 year growth, high EPS 5 year growth, high 5 year capital spending growth, high quick ratio, high current ratio, low LT debt/equity, low total debt/equity, high interest coverage, high pre-tax margin, high net profit margin, low tax rate, low 5 year tax rate, high return on assets, high 5 year return on assets, high return on investment, high 5 year return on investment, high revenue/employee, high net income/ employee.

By my count, that's 29 good things you can say about JAKK where it trounces other toy companies, other consumer products companies AND the s&p 500 companies. By comparison, here are the categories where JAKK is weaker than all 3 levels of competition:

low dividend yield, low 5 year dividend, low dividend growth rate, low EBITD margin.

Assuming you care about dividends (those aren't fashionable these days either), that gives JAKK a record of 29 wins and 4 losses for a stunning .878 average. (Most companies scrape by around .250).

Now many of these numbers are old data and I don't know what kind of bombshell 3Q earnings report is going to be released this month, but unless the CEO took off with all the money it's a fair bet to say JAKK is undervalued. And even if this did happen, JAKK could still reorganize and be hugely profitable faster than Red Hat or Priceline.com.

If the big news that recently sent the stock down over 60% is simply that sales of WWF figures has slowed then I'd say the selloff was overdone and quite unjustified. Obviously investors didn't believe the WWF phenomenon would continue indefinitely because JAKK's pe has been bumping around 10-15 all year while the S&P 500's pe has been in the high 30's. Now if JAKK's stock price had been pumped up by lofty expectations to a pe of 50, 80 or even 100, then I could see some cause for alarm that 3Q earnings might "only" be 20% higher than last year.

By the way, I once calculated that if JAKK's 134% 5 year growth rate could continue indefinitely that the stock would be worth at least $1,500,000.00 per share within 10 years. If that does happen, I promise to buy each and every one of you a Power Puff Girl Activity Case.










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