I woke up to a pleasant surprise — a dip in Spin Master Corp. (TSX:TOY) stock. As of the time of writing, the growth stock is down +6% from the previous day’s closing price. This could be an opportunity to buy the growth stock on the dip. Is it?
First, let’s explore the cause of the dip. It wasn’t because of a quarterly report because Spin Master reported one last week.
What’s causing the dip in the growth stock?
The stock is being pressured because there’s an above-average volume of stock being supplied in a short period. Specifically, the founders are selling $150-171.6 million worth of subordinate voting shares in the form of a secondary offering. The closing of the offering is expected to occur on or about August 15, 2018.
At the same time, a group of Spin Master employees is selling subordinate voting shares for gross proceeds of about $30 million. The employees are offloading about 24.4% of their shares in aggregate.
Notably, Spin Master doesn’t get any proceeds. So, these events are not dilutive to current shareholders.
Doesn’t the sale of shares from founders and its employees imply they’re bearish on the stock?
Not necessarily. Stock owners can sell for a number of reasons. The founders of Spin Master are bound to offload some shares at one point. It just happens to be now. The same goes for the employees. I mean, these people already work at the company. They would be de-risking their investment portfolios by diversifying from a concentration in Spin Master.
Their selling of the subordinate voting shares is bound to happen. It just may be a little strange that both the founders and employees happen to be selling at the same time.
Is this a buying opportunity?
The founders are selling the stock at $53.40 per share, while in the open market, the stock is trading at about $51.50 per share for a ~3.5% discount. This recent quotation implies a forward multiple of about 21.9, which is, at worst, reasonably priced for the children’s entertainment company that’s expected to grow at a double-digit rate.
So, it’s a good opportunity to buy Spin Master on the dip.
Spin Master is a global company with substantial insider ownership. Despite the selling, the founders will still represent about 95% of the total votes outstanding of the company.
Spin Master has strong growth potential via innovation, global expansion, and strategic acquisitions. Long-term investors looking for an excellent business should consider buying the dip.