JAKKs Pacific’s Earnings Show It’s Not Playing Games

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I recently covered JAKKS Pacific (NASDAQ:JAKK) in an article here at Wall St. Cheat Sheet. In that article I introduced readers to this little-known toy company that competes with the likes of Mattel (NASDAQ:MAT) and Hasbro (NASDAQ:HAS). JAKKS is a leading designer and marketer of toys and consumer products with a wide range that features popular brands and children’s toy licenses. Like other toy companies, it has been struggling despite its large number of offerings to customers.

I discussed in that article why I believed that JAKKS had finally turned the corner. Reasons included a successful partnering with Disney (NYSE:DIS) to make toys for the movie Frozen and a huge deal with the upcoming Warner Bros. film Godzilla. I told you that the third quarter started the turnaround, and despite huge disappointments from Mattel and Hasbro, I thought that JAKKS could surprise to the upside, leading to a large short squeeze. The purpose of this article is to assess that call, to discuss the fourth-quarter earnings of JAKKS, and to discuss the future of the company and the stock.

Big surprise from earnings triggered a short squeeze

Coming into earnings, JAKK was one of the most heavily shorted stocks I’ve seen in a while with more than 7.3 million shares sold short, representing 49 percent of the float. I said that good news could drive the stock higher and set a $7.25 price target in that recent article. After JAKKS reported its fourth-quarter earnings, the stock rocketed higher and surpassed my price target by a few cents. In essence, we nailed it. But just how strong was the quarter?