Spin Master Corp. (TSX:TOY), one of the world’s largest children’s entertainment companies, released its second-quarter earnings results and raised its guidance for 2017 after the market closed yesterday, and its stock has responded by soaring more than 15% in today’s trading session. Let’s break down the quarterly results and the new guidance to determine if the rally can continue and if we should be long-term buyers today.
A very strong quarter of double-digit growth
Here’s a quick breakdown of 10 of the most notable statistics from Spin Master’s three-month period ended on June 30, 2017, compared with the same period in 2016:
|Metric||Q2 2017||Q2 2016||Change|
|Total gross product sales||US$283.17 million||US$186.02 million||52.2%|
|Total gross sales||US$300.74 million||US$198.38 million||51.6%|
|Total revenue||US$276.65 million||US$179.36 million||54.2%|
|Gross profit||US$141.4 million||US$91.63 million||54.3%|
|Adjusted EBITDA||US$43.72 million||US$25.39 million||72.2%|
|Adjusted EBITDA margin||15.8%||14.2%||160 basis points|
|Adjusted net income||US$22.22 million||US$11.7 million||89.9%|
|Adjusted earnings per share (EPS)||US$0.22||US$0.12||83.3%|
|Free cash flow (cash use)||US$24.84 million||(US$11.03 million)||N/A|
A bump in its guidance
As a result of its very strong financial performance in the first half of 2017, Spin Master raised its guidance for the full year. Here’s a breakdown of its new guidance compared with its previous guidance:
|Metric||New Guidance||Previous Guidance|
|Gross product sales growth (excluding Swimways)||Mid-20% growth range||Mid to high single-digit growth|
|Gross product sales growth (including Swimways)||Low 30% growth range||Low teens growth range|
|Adjusted EBITDA margin (including Swimways and Toca Boca)||100 basis points over 2016||In line with 2016|
Should you buy Spin Master today?
It was a phenomenal quarter overall for Spin Master, and it capped off an outstanding first half of the year for the company, in which its revenues increased 47.9% year over year to US$504.4 million, its adjusted net income increased 53.6% year over year to US$35.77 million, and its adjusted EPS increased 45.8% year over year to US$0.35.
I think the market has reacted correctly by sending Spin Master’s stock soaring today, and I think it could continue higher from here, because investors will continue to pay up for its incredible growth rate. With all of this being said, I think Foolish investors should consider beginning to scale in to long-term positions in Spin Master over the next couple of trading sessions.
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Fool contributor Joseph Solitro has no position in any stocks mentioned.