Daily Double
September 30, 1999
Ticker: (Nasdaq: JAKK)
Phone: 310-456-7796
Website: www.jakkspacific.com
Price (9/29/99): $38 1/2
By
Thursday, September 30, 1999
How Did it Double?
Like a World Wrestling Federation (WWF) title bout, JAKKS Pacific couldn't have scripted its success any better. For a toymaker whose bread and butter is licensing popular brands into playthings, its line of wrestling action figures has pinned the consumer down for the count.
Wrestling is hot. Again. Folks who figured the fad passed decades ago when masked marauders hailing from parts unknown would be done in by the good guys -- or more recently when the likes of Hulk Hogan or a pre-gubernatorial Jesse "The Body" Ventura ruled the ring -- are probably suffering from the side effects of a sleeper hold.
WWF, WCW, and even ECW have made wrestling a prime-time TV ratings clincher, and children, primarily young boys, are ranking the licensed toys high on their wish lists. In the process, the company has bodyslammed the pundits with explosive and consistent earnings growth.
Business Description
In 1995 JAKKS assumed control of Justin Products, which at the time was producing a line of plastic dolls. Out to diversify (yes, a JAKKS of all trades), the company went on a buying spree.
In 1996 the company obtained the prized WWF license. A year later the company acquired the Road Champs line of die-cast collectibles, the Remco slate of Tuff Ones, and the Child Guidance maker of toddler toys. Child Guidance has been awarded the Good Housekeeping Seal of Approval.
Financial Facts
Income Statement
12-month sales: $119.0 million
12-month income: $10.3 million
12-month EPS: $1.25
Profit Margin: 8.7%
Market Cap: $404.3 million
Balance Sheet
Cash: $64.2 million
Current Assets: $95.1 million
Current Liabilities: $28.2 million
Long-term Debt: N/A
Ratios
Price-to-earnings: 30.8
Price-to-sales: 3.4
How Could You Have Found This Double?
"Toy-rific!" That's how JAKKS chose to open its letter to shareholders in its 1998 annual report. And why not? Just three years ago the company was raking in just $12 million in sales and barely a million in profits.
The growth has been as phenomenal as it has been consistent. Over the last 12 quarters the company has managed year-over-year growth in both sales and earnings. That is an impressive feat in light of what is typically a fickle industry. JAKKS has also shown sustainable profits in and out of season, which is rare in the realm of toy companies that normally report losses in the first half of the year leading up to the holiday payday.
The WWF action figures move and speak -- they even sweat. Investors who have watched the company's positive quarterly trends over the last few years probably didn't have to sweat it out themselves. They knew JAKKS. They knew that market radars would eventually hone in on the company -- the 9th fastest grower, according to the most recent Fortune ranking of "America's 100 Fastest-Growing Companies."
The company has also popped up on the Foolish Eight screen of fast growing small companies.
Where to From Here?
With no desire to cut down on its buyout diet, JAKKS has been aggressive this year. Over the summer it acquired Berk, the leader in foam educational toys. The company also raised $52.1 million with a 2.7 million share secondary offering.
Last week the company announced its biggest purchase to date -- Flying Colors. With $54 million in trailing sales, JAKKS's streak of quarterly top-line growth is a safe bet to continue. Flying Colors, which makes licensed lunch boxes, clay compound, and plastic activity sets, will help JAKKS in other ways. It opens up arts and crafts and back-to-school distribution channels for the company. Flying Colors also has licensing relationships with kiddie magnets Nickelodeon and Warner Brothers.
It should make the company stronger, and that is coming off what has been a "toy-rific" 1999. In the first quarter, with analysts projecting a $0.12 a share showing, the company obliterated the expectations with a $0.25 per share report. The June quarter? More of the same. JAKKS announced earnings of $0.32 a share when the consensus estimate ran at $0.23.
As the company continues to pick up businesses that are accretive to earnings, the current forecasts calling for JAKKS to earn $1.47 a share this year and $2.00 next year might prove conservative as well. A holiday gift to shareholders? JAKKS -- in a box.
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