Shares of JAKKS Pacific (JAKK) have experienced a 20% decline following a first-quarter loss of $1.09 per share on April 24, which was higher than the expected 85 cent deficit. The weak demand for products related to the Wish film by Walt Disney Animation Studios contributed to this underperformance. JAKK had to support its retail partners by funding markdowns to move excess stock and address cancelled reorders, resulting in a decrease in net sales for the quarter. However, the company remains optimistic about a return to growth in the second half of the year, with upcoming releases such as Despicable Me 4, Wicked, Moana 2, and Sonic the Hedgehog 3.
Despite the challenges faced in the first quarter, JAKK was quick to address the issue and entered the second quarter with significantly reduced inventory levels. This leaner position sets the company up well to meet demand in the upcoming selling periods with reduced risk of having to slash prices. The company also ended the quarter with a net cash position of $35.5 million, the highest since 2012, after redeeming its Series A Senior Preferred Stock and issuing new common stock. This move eliminates financial obligations from its 2019 restructuring and positions JAKK for future earnings to fully accrue to the common stock.
JAKK has been making progress in expanding its product lines, with a focus on its year-round offerings that are becoming an increasingly larger portion of its portfolio. The company’s partnership with Authentic Brands Group has already shown success and calls for an expansion into branded products such as roller skates, dolls, and outdoor furniture. As a debt-free company with a forward earnings multiple of less than 6 times even the revised consensus estimate for the year, JAKK presents an attractive investment opportunity, especially considering the continued growth potential in its product portfolio.
The company’s Disney business and new Simpsons line have been gaining traction with retailers, indicating a steady increase in sales. Additionally, the long-term partnership with Authentic Brands Group is expected to drive sustained top and bottom-line growth with less volatility in the years ahead. JAKK is recommended as a stock to watch in the Forbes Investor newsletter, which highlights undervalued gems with significant upside potential. With the stock currently trading at a low multiple of earnings, investors may find it advantageous to take advantage of the short-term decline and consider investing in JAKK for potential long-term gains.
Julius Juennamann, CFA, the equity analyst and associate editor of the Forbes Special Situation Survey and Forbes Investor newsletters, recommends JAKKS Pacific (JAKK) as a potential investment opportunity. The company’s strategic partnerships, product expansions, and improved financial position following the redemption of preferred stock make it an attractive choice for investors seeking growth potential in the toy industry. With a focus on core product lines and upcoming blockbuster film releases, JAKK is positioned for a return to growth in the second half of the year. Investors looking for undervalued stocks with growth prospects may want to consider JAKKS Pacific.
