The Motley Fool

Spin Master Corp.’s 11% Climb in a Day Says 1 Thing

Before Wednesday, Spin Master Corp. (TSX:TOY) shares suffered a severe decline of about 21% from its November 2016 high.

The strong share price decline had to do with bad press surrounding supply issues due to higher than expected demand of its hot toy, Hatchimals, during the holidays, followed by angry parents and upset children due to the malfunctions of some Hatchimals not hatching.

Yet, in a single day, Spin Master shares made an impressive comeback by rising 11%.

That only spells one thing — the shares were greatly underappreciated and substantially undervalued before the bid-up in price.

Growth

The news on Tuesday with regards to Spin Master receiving U.S. and Chinese patents covering the Hatchimals technology serves as a nice reminder of Spin Master’s innovative abilities.

It aims to build a robust pipeline in all of its business segments and to continue to invest in advanced technology and entertainment licenses, as well as drive cross-platform exploitation of toys and mobile gaming.

Additionally, Spin Master develops and creates global entertainment properties, characters, and content, and monetizes that content via product creation, sale, and licensing.

So far, Spin Master has produced six television series, including its current hit, PAW Patrol, which is broadcasted in over 160 countries and territories. It plans to keep the funnel flowing by developing one to two shows per year.

Spin Master PAW Patrol

Photo: Televisione Streaming. License: https://creativecommons.org/licenses/by/2.0/ Source: https://www.flickr.com/photos/televisione/22413901886

Spin Master has also been spicing up its growth via strategic acquisitions where it makes sense.

Here’s an example. Spin Master acquired Meccano, which was a brand with over a century’s history. With Spin Master’s product innovation and fresh marketing, Meccanoid came out on top and won the prestigious “Last Gadget Standing” at 2015’s Consumer Electronics Shows.

In 2015, 76% of the global traditional toys and games sales were outside North America. Yet at the end of 2015, Spin Master only generated about 30% of its sales from outside North America. So, it has the ability to increase its international sales to capitalize on higher-growth markets.

Altogether, Spin Master’s innovation, global entertainment properties, strategic acquisitions, and strategy to expand its global sales should help the company maintain its double-digit growth trajectory.

A diversified portfolio with award-winning products

Spin Master has a diversified portfolio of products. Its sales are diversified across four main categories: Pre-school and Girls (38% of Q3 year-to-date gross product sales), Activities, Games & Puzzles (26%), Remote Control and Interactive Characters (22%), and Boys Action and High-Tech Construction (14%).

Some of Spin Master’s best-known award-winning brands include Zoomer™ Dino, Bakugan Battle Brawlers™, and Air Hogs®. Since 2005, Spin Master has received 82 TIA Toy of the Year nominations and won 18 times across different product categories.

The company just won three prestigious U.K. 2017 Toy of the Year Awards in February. Hatchimals won the Toy of the Year 2017 award and PAW Patrol won two awards: Licensed Toy of the Year and Preschool Toy of the Year.

Investor takeaway

Spin Master is a great company for investors looking to spice up the growth of their long-term portfolios. Despite a run-up of 11%, Spin Master is still reasonably priced for its growth prospects.

At $33.70 per share, it trades at a forward multiple of about 18.8. Investors should note that the company is reporting its Q4 results on March 14. So, interested investors can buy some shares now and decide whether to buy more after its earnings report.

Just Released! 5 Stocks Under $49 (FREE REPORT)

Motley Fool Canada's market-beating team has just released a brand-new FREE report revealing 5 "dirt cheap" stocks that you can buy today for under $49 a share. Our team thinks these 5 stocks are critically undervalued, but more importantly, could potentially make Canadian investors who act quickly a fortune. Don't miss out! Simply click the link below to grab your free copy and discover all 5 of these stocks now.

Claim your FREE 5-stock report now!

Fool contributor Kay Ng owns shares of Spin Master.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.

I consent to receiving information from The Motley Fool via email, direct mail, and occasional special offer phone calls. I understand I can unsubscribe from these updates at any time. Please read the Privacy Statement and Terms of Service for more information.