Since Spin Master (TSX:TOY) began trading on the Toronto Stock Exchange in 2015, the amazing growth stock has been steadily bid up to a valuation as high as a price-to-earnings ratio (P/E) of more than 25.
Thankfully, in the recent market correction, Spin Master stock also got dragged down. And at about $41 per share as of writing, it trades at a much more appetizing blended P/E of about 17.6. So, now’s the perfect time for investors looking for growth in their portfolios to consider the quality stock.
Spin Master offers market-beating returns
Despite correcting about 23% year to date and falling more than 30% from the July high, the stock has still delivered market- and industry-beating returns of about 27% per year on average since inception. There are various reasons why Spin Master has outperformed bigger names, such as Hasbro and Mattel, which have delivered annualized returns of about 7% and -9%, respectively, in the period.
A part of the leading children entertainment company’s outperformance had to do with some appropriate multiple expansions as well as excellent execution from Spin Master management and its team.
From 2015-2017, Spin Master had excellent returns on assets (ROA) of 11-19%, returns on equity (ROE) of 39-132%, and returns on invested capital (ROIC) of 29-79%.
Obviously, it’s nearly impossible to replicate the high percentages of the ROE and ROIC. However, the growth stock’s recent returns are still extraordinary with trailing 12-month ROA, ROE, and ROIC being +14%, +28%, and +28%, respectively.
3 growth drivers for Spin Master
Spin Master has multiple growth drivers. First, it has a global reach. Specifically, it has 28 global offices and sells to more than 60 countries for global growth.
Second, its experienced and entrepreneurial management team, which is led by the co-founders, is investing in the right places to drive growth for the mid-cap, growth-focused company.
Third, innovating is a part of the company’s process, which leads to products that excite the minds and fuel the imagination of children.
Furthermore, the company has a clean balance sheet and essentially has no long-term debt.
Spin Master has five business segments. The key segments are “Remote Control and Interactive Characters” (think integrating technology with toys), “Pre-school and Girls,” and “Activities, Games, Puzzles and Fun Furniture,” which made up 36%, 30%, and 22%, respectively, of its gross product sales in 2017 for a total of 88%.
With a diversified portfolio of high-return assets and multiple growth drivers, the essential ingredient for investors to get market-beating returns from Spin Master is to buy the stock get good valuations.
Right now, the growth stock is a decent value, and interested investors should consider beginning accumulating shares and buy more on any further dips.
Motley Fool Canada's market-beating team has just released a brand-new FREE report revealing 5 "dirt cheap" stocks that you can buy today for under $49 a share.
Our team thinks these 5 stocks are critically undervalued, but more importantly, could potentially make Canadian investors who act quickly a fortune.
Don't miss out! Simply click the link below to grab your free copy and discover all 5 of these stocks now.
Fool contributor Kay Ng owns shares of Spin Master. The Motley Fool owns shares of Hasbro and Spin Master. Spin Master is a recommendation of Stock Advisor Canada.