Spin Master Corp. (TSX: TOY) has been one of the best performers in my portfolio. Year to date, the growth stock has appreciated more than 60%!
You might not have heard about the toy maker, because it only started trading on the Toronto Stock Exchange in the summer of 2015. Warren Buffett would caution investors against buying into initial public offerings, because there’s no public history of the new company’s performance. In other words, you never know if a newly traded company will be a winner or a dud. However, I believe Spin Master is a winner.
Spin Master will continue to succeed
Spin Master has generated tremendous value for shareholders. Spin Master’s returns on equity were in the double-digit or triple-digit percentages in the last two years. Management not only makes accretive acquisitions, but it also improves the acquired products, infusing them with innovation.
Spin Master’s returns on assets were at least 11% in the last two years, which means that it’s generating good returns from its assets and doesn’t solely rely on acquisitions for its success.
Since 2005, the company’s innovation has led it to win 21 Toy of the Year awards across different product categories (and it has been nominated for 82 awards).
Spin Master doesn’t just make toys. Its diversified portfolio also consists of games, other products, and entertainment properties.
Its products are sold in more than 60 countries, and it has produced six television series, including the current hit PAW Patrol, which can be enjoyed by children on TV in more than 160 countries and territories around the world.
The story is not all smooth sailing
I’ve held Spin Master shares since September 2016, and I can tell you that the stock is subject to headline risks that can trigger dramatic drops. In the last holiday season, the company had some malfunctioning Hatchimals, which is one of its flagship toys. The news led Spin Master stock to fall as much as 12% in two days.
Investor takeaway
In July, when Spin Master was trading at a forward multiple of roughly 20, I said it was another opportunity to buy the discounted shares. Since then, the stock has appreciated more than 40%. At about $51 per share, Spin Master trades at a forward multiple of about 24.
Since Spin Master is known for having big dips. Cautious investors looking to invest in the growth company should consider it when the stock drops more than 10% from a high triggered by temporary problems.
