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JAKKS Pacific, Inc. (NASDAQ:JAKK)

JAKK makes and sells toys, craft and pet products. The company hasn't been able to recover its stock price from the 2008 crash unlike most companies. JAKK like any other company has its risks.

I'm not a fan of toy companies because customers are unlikely to buy the same toy twice. I don't recall ever having bought two Power Rangers or Ninja Turtles.

In other words, without increasing the diversity of products, sales will be affected.

Also consider that it's main source of revenue are its big three customers, Wal-Mart (NYSE:WMT), Target (NYSE:TGT) and Toys R Us (TOYS) as well as a joint venture with THQ (THQI) in the video gaming segment. The profit from this venture isn't huge, but it is profitable.

Despite these risks, JAKK is a consistent profitable company and very much deserves to be watched.

Some good points include:

  • CROIC is back in the teens after dropping to 9.5% in 2008.
  • 8% of sales is converted to FCF. Above 5% is considered good.
  • Tangible book value has been increasing for the past 5 years.

JAKK Valuation:

  • Current stock price: $14.53
  • DCF: $27.21, assuming a FCF growth rate of 6% and 15% discount rate
  • Graham Value: $16.14, assuming EPS of $1.10 with 5.5% EPS growth
  • EPV: $16.83, adjusted normalized income of $50m and 11% discount rate

Iteris Inc (NYSEMKT:ITI)

ITI operates in the traffic management market focusing on the development and application of advanced technologies that reduce traffic congestion, minimize the environmental impact of traffic congestion and improve the safety of surface transportation systems infrastructure.

Adam from Value Uncovered has written up a good analysis on ITI in the value investing forum which I recommend you read.

  • Current stock price: $1.45
  • DCF: $2.03, assuming a FCF growth rate of 0% and 15% discount rate
  • Graham Value: $2.90, assuming EPS of $0.43 with 0% EPS growth
  • EPV: $2.44, adjusted normalized income of $12.71m and 15% discount rate

As you can see, these are very conservative valuations based on down-cycle numbers.

Spartan Motors (NASDAQ:SPAR)

I added SPAR to the OSV passive portfolio, which is up 10% YTD by the way, and it is the worst performer in the group of holdings. Down 33% from when I added it. I found it to be cheap back then but what about now?

Spartan Motors, Inc. is an engineer and manufacturer in the heavy-duty, custom vehicles marketplace.

FCF is hard to predict due to the cyclic nature and the big changes yoy. Net margin has also been slashed which is a very worrisome sign as there wasn't much of a buffer to begin with. With a 2.7% net margin in 2009 and TTM net margin of 1.3% SPAR may remain in the down cycle for a while longer as costs are squeezed.

The bright side is that despite announced Q2 loss announced on Jul 23rd, the stock price dropped only 4%.

From personal experience when I invested in IGOI, when a company announces bad results or news with little effect on the stock price, it is a sign that there is 0% optimism for the company which only means a huge upside if the company surprises and provides ok results.

  • Current stock price: $4.42
  • DCF: $8.61, assuming a FCF growth rate of 0% and 19% discount rate
  • Graham Value: $11.84, assuming EPS of $0.5 with 0% EPS growth
  • EPV: $3.67, adjusted normalized income of $28m and 15% discount rate

Disclosure: None

Source: Overlooked Value Investment Ideas