JAKKS Pacific, Inc. (JAKK): A Bull Case Theory

We came across a bullish thesis on JAKKS Pacific, Inc. (JAKK) on Substack by Unemployed Value Degen. In this article, we will summarize the bulls’ thesis on JAKK. JAKKS Pacific, Inc. (JAKK)’s share was trading at $28.83 as of Feb 24^th. JAKK’s trailing and forward P/E were 9.18 and 7.37 respectively according to Yahoo Finance.

JAKKS Pacific reported full-year 2024 earnings per share of $3.79, a decline from $4.62 in 2023. Despite the strong earnings, the stock sold off from $35 to $30 on the announcement, reflecting a market eager to sell. The earnings decline was primarily due to the disappointing performance of Disney’s Wish, which flopped in theaters in Fall 2023 and subsequently impacted merchandise sales when it transitioned to streaming in Spring 2024. However, the outlook is improving significantly. Moana 2 and Sonic 3, both major box office successes in Fall 2024, will enter the streaming cycle in Spring 2025, likely driving a substantial rebound in JAKKS’ earnings for the full year. If Disney produces another major hit like Encanto in 2021, EPS could exceed $10, but even in a more conservative scenario, earnings should remain in the $4–$5 range over the next three years, unless Sonic 3 and Moana 2 exceed expectations.

Management announced a $0.25 quarterly dividend, which represents about one-third of net income and one-fifth of EBITDA. The remainder of the company’s cash flow will be used to replenish reserves following the redemption of preferred shares. While share buybacks could have been another option, the price-to-tangible book ratio of 1.37x makes dividends a reasonable choice. Growth initiatives include expansion in Europe and South America, as well as a new licensing agreement for Minecraft costumes. JAKKS remains a capital-light organic growth story, though upside potential is more limited at current levels. A return to a price-to-sales ratio of 1.0x would imply a double from here, but the deep value opportunity was in Summer 2024 when shares were at $18. The upcoming Minecraft movie in April 2025 and Frozen 3 in November 2027 present potential catalysts for further upside.

JAKKS Pacific, Inc. (JAKK) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 18 hedge fund portfolios held JAKK at the end of the third quarter which was 12 in the previous quarter. While we acknowledge the risk and potential of JAKK as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than JAKK but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article was originally published at Insider Monkey.