Is Spin Master Corp. a Buy Following its Strong Q3 Report?

Should you buy Spin Master Corp. (TSX:TOY) following its strong third-quarter earnings release? Let’s find out.

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Spin Master Corp. (TSX:TOY), one of the world’s largest children’s entertainment companies, announced its third-quarter earnings results after the market closed on Tuesday, and its stock reacted by trading erratically on Wednesday before finishing the day unchanged. Let’s break down the quarterly results to determine if we should be long-term buyers today.

Strong consumer demand leads to double-digit growth

Here’s a breakdown of 10 of the most notable financial statistics from Spin Master’s three-month period ended September 30, 2017, compared with the same period in 2016:

Metric Q3 2017 Q3 2016 Change
Total gross product sales US$660.91 million US$518.57 million 27.4%
Total gross sales US$678.59 million US$535.84 million 26.6%
Total revenue US$606.10 million US$475.02 million 27.6%
Gross profit US$316.86 million US$247.3 million 27.9%
Gross margin 52.3% 52.2% 10 basis points
Adjusted EBITDA US$170.31 million US$133.26 million 27.8%
Adjusted EBITDA margin 28.1% 28.1% unchanged
Adjusted net income US$111.71 million US$87.48 million 27.7%
Adjusted earnings per share (EPS) US$1.10 US$0.86 27.9%
Free cash flow US$145.17 million US$117.24 million 23.8%

What should you do with the stock now? 

It was a fantastic quarter of double-digit growth for Spin Master, which has been an ongoing theme for the company in 2017, as its total revenue increased 36.1% to US$1.11 billion, its adjusted EBITDA increased 34.1% to US$244.85 million, and its adjusted net income increased 33.1% to US$147.49 million in the first nine months of the year compared with the first nine months in 2016.

With the statistics above in mind, I think the market should have reacted by sending Spin Master’s stock significantly higher on Wednesday; that being said, I think the lack of movement represents a great entry point for long-term investors, because it’s one of the best growth stocks in the toy industry today, and because it trades at very attractive valuations, including less than 22 times fiscal 2017’s estimated EPS of US$2.13 and less than 20 times fiscal 2018’s estimated EPS of US$2.38.

Spin Master’s stock has risen more than 46% year to date, more than 55% since February 21, and more than 25% since it released its second-quarter earnings results on August 1, and I think it still represents a very attractive long-term investment opportunity, so take a closer look and consider adding it to your portfolio today.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joseph Solitro has no position in any stocks mentioned.

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