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Here’s one to look into: JAKKS Pacific (NASDAQ:JAKK), a Malibu, CA based company that designs, develops, and markets toys.

Some of the stats that caught our attention include single digit trailing and forward PEs, and a stock price just a few nickels over book value. Yahoo! reports cash at $228.1 million, long term debt at $98.0 million, and a market cap of $513.3 million. Gross of debt, that means cash makes up over 44% of the share price.

Move from the valuation to the last ten years’ financial results and we keep smiling. Sales were $12.1 million at 12/96 and grew each and every year until 12/04 when they logged $574.3 million. Net income jumped from $1.2 million to $43.6 million over the same period. Perhaps insider ownership (at over 6% today) helped keep management motivated. Some of the corporate bigshots also get handsome bonuses for growing "Adjusted EPS" (see K's and Q's for details).

Looking forward, on October 19 management reiterated FY 2005 guidance of approximately $660 million in revenue and diluted EPS of approximately $2.28. Shares closed at $19.23 on Friday, implying a rock-bottom FY 2005 PE ratio of 8.43.

What’s the catch? We’re still doing our research so we haven’t mastered the story yet. Here are some concerns on our mind.

Shares outstanding have grown over the long term, meaning that owners suffered dilution, even though EPS climbed from $0.23 in 1996 to $1.49 in 2004.

The market also has a love/hate relationship with JAKK, sending it rocketing up some months and crashing down in others. If you can’t stomach volatility, be extra careful with this one. The past few weeks have been in rocket mode, so depending whether you like to buy on the way up or on the way down, that could be a good or bad thing.

This is not the first time the stock is cheap; over the past few years it has spent several long stretches in valuation neighborhoods comparable to today’s.

Management has also left a bad taste in the mouth of some investors as a bribery scandal is still not behind the company. We wish we had some more clarity on these folks.

One of the largest holders of the stock is Marty Whitman’s Third Avenue which holds JAKK in several funds. We’ll need to come to our own conclusion about the company but feel good about having Whitman’s thumbs up.

Source: Jakk Up Your Portfolio (JAKK)