JAKKS Pacific: Batman to Warcraft

03/08/2016 7:00 am EST


Taesik Yoon

Editor, Forbes Investor and Forbes Special Situation Survey

Toys can be a tough business. Due to the fickle nature of kids, what's hot one minute can quickly become a forgotten fad the next, asserts Taesik Yoon, editor of Forbes Investor.

Perhaps it was this fear that drove toymaker JAKKS Pacific (JAKK) to its lowest level in nearly a year after it reported a much wider-than-expected net loss in the final quarter of 2015 and provided weak guidance for the current period.

But JAKK is no one-trick pony. The firm primarily focuses on acquiring or licensing well-recognized trademarks and brand names with long product histories.

Armed with a growing portfolio of licensing rights, it has a plethora of new product launches on tap for 2016, that should drive significantly stronger sales performance and earnings growth in excess of 50% over the rest of the year. 

As this unfolds, we think the stock will have little trouble climbing meaningfully higher from here.

We believe this rush to judgment is premature. In particular, the substantial miss in earnings was not the result of a similar underperformance in the top line. 

We think it's more relevant to look beyond the current period and focus on JAKK's full-year expectations for net sales and earnings per share to be up approximately 7% and 10%, respectively. 

When you consider the company's strong pipeline of upcoming products - many of which are tied to a number highly anticipated films - it's hard for us to share this skepticism. 

For example, JAKK has already shipped its first line of Batman v Superman: Dawn of Justice action figures. 

The company will also release products associated with Teenage Mutant Ninja Turtles: Out of the Shadows, as well as a version of its award-winning XPV radio control vehicle inspired by the upcoming Captain America: Civil War movie slated for May. 

Furthermore, JAKK is producing a full line of action figures under its master toy rights to Warcraft, the upcoming movie based on the hugely popular online role-playing game.

With these product launches, as well as contributions from company-owned properties, we feel JAKK's best days of the year remain very much in front of it, and we think the same will prove true for its share value.

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