Spin Master Corp. (TSX:TOY) is a Canadian children’s toy company, which designs, manufactures, and markets a strong portfolio of toys and games. The stock has been on a fantastic run, as it soared 90% since its initial offering. The company has great potential and terrific assets, but can the stock continue its impressive run going into 2017?
The stock has gone up big time, and there’s a huge premium involved with owning shares at current levels, but as the Christmas season approaches, we may see Spin Master hit record sales. The company is very good at creating original and innovative toys that fly off shelves like crazy, and, for a relatively small company with a market cap of just $825 million, we could be seeing the next Hasbro Inc. or Mattel Inc. in the works.
One new toy developed exclusively by Spin Master is Hatchimals, which is considered to be the hottest toy of 2016. Toy industry analyst Juli Lennett stated, “For the last four years, there has been nothing comparable to the instant sales success within weeks of launch as Hatchimals.” The toy has been flying off shelves and is considered to be more popular than Walt Disney Co’s Frozen in its prime.
Hatchimals is already sold out across many of the major retailers across Canada and is now very difficult to get across all of the major physical and online retailers. It is the Turboman of 2016, if you will, and there’s a bidding war for the toy, which retails at about $50, on eBay for prices north of $200.
There’s no question that supply can’t keep up with the demand, and I believe that the great success of Hatchimals will drive earnings in the short and medium term, as the company continues to reward shareholders with very impressive returns.
The team at Spin Master knows the toy business very well and can be expected to continue making groundbreaking toys that will be huge successes. Analysts have given Spin Master a $34.40 consensus price target, and the upgrades are expected to continue to come in, as the holiday season will yield a potentially record-breaking quarter to come.
If you’re an investor who is looking for huge growth, then Spin Master may be the stock you’re looking for, as the business continues to impress with its successful lineup of toys like Hatchimals.
The stock is perfect, but it’s anything but cheap right now. It currently has a 49.8 price-to-earnings multiple with a price-to-book ratio of a whopping 11.1. The stock doesn’t pay a dividend either, so you will only benefit from capital gains should there be any from this level.
Personally, I think the stock is just too expensive right now, and, despite loving the business, I would wait until a pullback happens before considering picking up shares of Spin Master. It’s a risky bet right now, and there could be a buying opportunity around the corner for the patient investor.
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Fool contributor Joey Frenette has no position in any stocks mentioned. David Gardner owns shares of Walt Disney. The Motley Fool owns shares of Walt Disney. The Motley Fool owns shares of eBay. Walt Disney is a recommendation of Stock Advisor Canada.