JAKKS Pacific, Inc.'s (NASDAQ:JAKK) Stock's On An Uptrend: Are Strong Financials Guiding The Market?
Most readers would already be aware that JAKKS Pacific's (NASDAQ:JAKK) stock increased significantly by 29% over the past month. Since the market usually pay for a company’s long-term fundamentals, we decided to study the company’s key performance indicators to see if they could be influencing the market. Specifically, we decided to study JAKKS Pacific's ROE in this article.
Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.
See our latest analysis for JAKKS Pacific
How Do You Calculate Return On Equity?
Return on equity can be calculated by using the formula:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for JAKKS Pacific is:
61% = US$92m ÷ US$152m (Based on the trailing twelve months to December 2022).
The 'return' is the profit over the last twelve months. So, this means that for every $1 of its shareholder's investments, the company generates a profit of $0.61.
What Is The Relationship Between ROE And Earnings Growth?
We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. Based on how much of its profits the company chooses to reinvest or "retain", we are then able to evaluate a company's future ability to generate profits. Assuming all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.
JAKKS Pacific's Earnings Growth And 61% ROE
First thing first, we like that JAKKS Pacific has an impressive ROE. Additionally, the company's ROE is higher compared to the industry average of 25% which is quite remarkable. As a result, JAKKS Pacific's exceptional 62% net income growth seen over the past five years, doesn't come as a surprise.
As a next step, we compared JAKKS Pacific's net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 27%.
The basis for attaching value to a company is, to a great extent, tied to its earnings growth. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. This then helps them determine if the stock is placed for a bright or bleak future. What is JAKK worth today? The intrinsic value infographic in our free research report helps visualize whether JAKK is currently mispriced by the market.
Is JAKKS Pacific Efficiently Re-investing Its Profits?
JAKKS Pacific doesn't pay any dividend currently which essentially means that it has been reinvesting all of its profits into the business. This definitely contributes to the high earnings growth number that we discussed above.
Summary
On the whole, we feel that JAKKS Pacific's performance has been quite good. Specifically, we like that the company is reinvesting a huge chunk of its profits at a high rate of return. This of course has caused the company to see substantial growth in its earnings. With that said, on studying the latest analyst forecasts, we found that while the company has seen growth in its past earnings, analysts expect its future earnings to shrink. Are these analysts expectations based on the broad expectations for the industry, or on the company's fundamentals? Click here to be taken to our analyst's forecasts page for the company.
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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.
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