JAKKS Pacific Shares Got Crushed: What You Need to Know
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of toy maker JAKKS Pacific (NAS: JAKK) were getting disassembled by investors today, falling as much as 22% in intraday trading after the company lowered its full-year guidance.
So what: There are few better ways to get a stock to sell off than when a management team tells investors that earnings will be drastically lower than what they expected. Right after yesterday's market close, the press release from JAKKS was ominous, a lament that "the sales performance of its products has been disappointing."
For 2011, the company now sees earnings per share coming in between $0.37 and $0.40, down from previous guidance of $1.32-$1.35.
Now what: With such a drastic sell-off in the wake of the announcement, there's the possibility that investors are overreacting. However, given the chasm between what the company delivered versus what it had told investors that it would deliver, before jumping in I'd want to dig further to figure out whether there is a reasonable explanation for management to have been so off. For this Fool, at least, a key component in a good investment is a management team that tells investors what it's going to do and then delivers on those promises.
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