JAKKS Pacific Goes to the Dogs

JAKKS Pacific (NASDAQ:JAKK) has many brands that make all sorts of kids' products. It has arts-and-crafts items, licensed action figures based on the World Wrestling Entertainment (NYSE:WWE) universe, and a vast portfolio of those "Plug It In & Play TV Games."

Games and action figures are wonderful, but it doesn't hurt to branch out a bit. In fact, the company issued a press release promoting a new acquisition that should help it reach a whole new audience. In short, JAKKS Pacific is now in the doghouse.

The company has struck a deal to buy a collection of pet products from Pet Pal, a private entity in Carlsbad, Calif. The company's items include ones based on licensed properties such as Viacom's (NYSE:VIA) SpongeBob SquarePants, DreamWorks Animation's (NYSE:DWA) Shrek and Madagascar franchises, and Mattel's (NYSE:MAT) famous Barbie icon.

Do pets around the country bug their masters for these items? That's what JAKKS Pacific is counting on as it diversifies. The company knows that it can't always count on kids to pester their parents to get them those joystick games. Animal lovers enjoy spoiling their charges, so the move opens up a whole new area of opportunity to exploit. I see it as smart positioning. This acquisition is expected to contribute to the company's bottom line starting in 2006; the value of the deal was not disclosed.

A three-year chart of the company shows a stock that has been quite volatile at times. (That big drop on the right was the result of some litigation issues with WWE). Someone looking to buy shares in JAKKS Pacific would be served well by waiting for a pullback. And while you're waiting, check out Rich Smith's excellent analysis (and cautionary tale) on the company. As I've said before, JAKKS Pacific is a good licensor and distributor in its industry. But considering the chart, and Rich's seven steps of analysis, I'd have to say that you must be careful before committing any investment capital.

For related news:

• See this announcement for the latest addition to the Plug It In & Play TV Games line, involving a deal with 4Kids Entertainment (NYSE:KDE) and the Yu-Gi-Oh! property.
• Viacom is about to have twins.
• What will you find when you open JAKKS's Box?
• These numbers could have you sharpening pencils over JAKKS.
• The WWE took JAKKS Pacific to the mat.

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Fool contributor Steven Mallas owns none of the companies mentioned. The Fool has a disclosure policy.