Spin Master Corp. (TSX:TOY) surged over 22% in a single trading session following an outstanding earnings report, which was really a grand slam home run for the toy maker. In many of my previous pieces, I strongly encouraged investors to pick up Spin Master at the low point of the seasonality cycle and said that shares would surge in the latter half of the year. Shares are up over 33% since my recommendation to buy the dip in June. After the magnificent single-day rally, it appears that TOY is fully valued, but for long-term investors, I’ll explain why it’s still a great buy.
Q2 2017 results deserve a round of applause
Spin Master really surprised to the upside with huge improvements over the same period last year. Total revenue, gross profit, and total gross sales increased by 54.2%, 54.3%, and 51.6%, respectively, on a year-over-year basis to US$276.65 million, US$141.4 million, and US$300.74 million, respectively. Adjusted earnings per share jumped 83.3% to US$0.22, up from $0.12 during the same quarter last year.
It was truly a massive beat across the board, and the management team’s upped guidance was a very promising sign for growth investors. I believe the post-earnings surge was completely warranted and could be the start of a sustained rally to even higher levels.
Should you buy after a historic rally?
Normally, if you missed a historic 22% rally, I’d say the gravy train had left the station, but in the case of Spin Master, I still believe there are positive catalysts that may propel shares much higher.
Innovation and strong portfolio of IP forms a massive moat
Spin Master is an incredibly innovative company which knows what kids are interested in. This is an incredible skill that will allow the company to compete with the likes of larger toy companies over the next decade. Unlike other toy companies, Spin Master really doesn’t need to rely on another company for inspiration for its toys (think of the relationship between Hasbro Inc. (NYSE:HAS) and Walt Disney Company (NYSE:DIS)). Spin Master has the ability to produce its own IP, and I believe this is a huge competitive edge it has over its peers in the children’s entertainment space.
I believe the holiday season for 2017 will be another quarter that could send shares of Spin Master flying with its impressive line-up, including Hatchimals 2.0, CollEGGtibles, and many other hot toys exclusively sold by Spin Master. The company has its international expansion plans in place as it penetrates the hot international market, which could provide a huge boost to revenues over the medium to long term.
Spin Master is in great financial health, and more acquisitions are likely in the cards over the next year as the company beefs up its already strong portfolio of brands.
I believe Spin Master is an incredible growth opportunity that many Canadians should add to their radars with the intention of buying on any dips going forward, as there are likely to be similar single-day surges in over the next few years.
Stay smart. Stay hungry. Stay Foolish.
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Fool contributor Joey Frenette owns shares of Spin Master Corp and Walt Disney. David Gardner owns shares of Walt Disney. The Motley Fool owns shares of Walt Disney. Walt Disney is a recommendation of Stock Advisor Canada.