Why JAKKS Pacific's (NASDAQ:JAKK) Shaky Earnings Are Just The Beginning Of Its Problems

The subdued market reaction suggests that JAKKS Pacific, Inc.'s (NASDAQ:JAKK) recent earnings didn't contain any surprises. However, we believe that investors should be aware of some underlying factors which may be of concern.

View our latest analysis for JAKKS Pacific

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. In fact, JAKKS Pacific increased the number of shares on issue by 9.4% over the last twelve months by issuing new shares. That means its earnings are split among a greater number of shares. Per share metrics like EPS help us understand how much actual shareholders are benefitting from the company's profits, while the net income level gives us a better view of the company's absolute size. You can see a chart of JAKKS Pacific's EPS by clicking here.

How Is Dilution Impacting JAKKS Pacific's Earnings Per Share (EPS)?

JAKKS Pacific was losing money three years ago. Even looking at the last year, profit was still down 58%. Sadly, earnings per share fell further, down a full 60% in that time. So you can see that the dilution has had a bit of an impact on shareholders.

If JAKKS Pacific's EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. However, if its profit increases while its earnings per share stay flat (or even fall) then shareholders might not see much benefit. For that reason, you could say that EPS is more important that net income in the long run, assuming the goal is to assess whether a company's share price might grow.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On JAKKS Pacific's Profit Performance

JAKKS Pacific issued shares during the year, and that means its EPS performance lags its net income growth. Therefore, it seems possible to us that JAKKS Pacific's true underlying earnings power is actually less than its statutory profit. Sadly, its EPS was down over the last twelve months. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. For example, we've discovered 2 warning signs that you should run your eye over to get a better picture of JAKKS Pacific.

This note has only looked at a single factor that sheds light on the nature of JAKKS Pacific's profit. But there are plenty of other ways to inform your opinion of a company. Some people consider a high return on equity to be a good sign of a quality business. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com