Should You Bet on This Toy Stock Getting Back to All-Time Highs?

Spin Master Corp. (TSX:TOY) is a tempting buy after its post-earnings dip, even as it faces headwinds in Q1 2019.

| More on:
Young adult woman walking up the stairs with sun sport background

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

Late last year, I’d discussed the prospects for two struggling Canadian retailers. These companies were equipped to weather the worst of the so-called “retail apocalypse,” but changing conditions in the late part of this decade are creating headwinds. For toy companies, the struggle has been readily apparent for over a decade.

In March 2018, Toys “R” Us announced that it would close all stores in the United States and Britain. Mattel, the second-largest toy maker in the world by revenue, has seen its stock plunge 55% over the past three years. However, shares have increased over 40% in 2019 so far. The company has struggled with North American sales but recently reported a better-than-expected fourth quarter. Hasbro has faced similar challenges, but its stock has also started off well this year.

Will Spin Master (TSX:TOY) continue on the same trajectory in 2019? The Toronto-based toy and entertainment company has seen its stock rise 3.3% in 2019 as of close on March 11. However, shares are still down 30% year over year.

Spin Master released its fourth-quarter and full-year results for 2018 on March 6. The company made specific reference to the disruption on the industry caused by the bankruptcy of Toys “R” Us. Still, Spin Master managed to deliver growth in gross product sales and adjusted EBITDA for the full year.

In the fourth quarter, the company reported revenue of $414.3 million, which was down 6% from the prior year. Gross product sales fell 9.3% in North America but posted growth in Europe and the rest of the world. Adjusted net income in Q4 2018 fell to $6.1 million, or $0.06 per diluted share, compared to $25.5 million, or $0.25 per diluted share, in the previous year.

For the full year, revenue climbed 5.2% from 2017 to $1.63 billion. Total gross product sales increased 3.1% year over year to $1.70 billion, as the company reported 2.2% growth in Europe and 19.5% sales growth in the rest of the world. Growth in product sales was muted in North America at 0.2%. Adjusted net income still fell 5.5% from the prior year to $163.5 million, or $1.60 per diluted share.

Spin Master is projecting the grow gross product sales in the low single-digit range in comparison to 2018. The company expects a weak Q1 2019, as the absence of Toys “R” Us will weigh on sales. The later timing of Easter is also forecast to be a negative factor. However, the company expects to deliver adjusted EBITDA margin for the full year in line with 2018.

Is Spin Master a good addition to your portfolio today? Currently the stock is trading at the low end of its 52-week range. Shares boast an RSI of 36, which puts it in oversold territory as of close on March 11. Taking this into account, Spin Master is a worthwhile bet following its post-earnings dip.

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 Ambrose O'Callaghan has no position in any of the stocks mentioned. The Motley Fool owns shares of Hasbro and Spin Master. The Motley Fool is short shares of Hasbro. Spin Master is a recommendation of Stock Advisor Canada.

More on Investing

Stocks for Beginners

Investing Strategies for Canadians in an Uncertain Economy

These are uncertain times, as the economy grapples with high inflation. Here are four investing strategies for the current market.

Read more »

Tech Stocks

These 3 Cheap Stocks Would Be an Excellent Addition to Your Portfolio

Given their attractive valuation and solid growth potential, these three stocks would be an excellent addition to your portfolio.

Read more »

money cash dividends
Dividend Stocks

TFSA Passive Income: 2 Top TSX Dividend Stocks to Buy on the Correction

These top dividend stocks look cheap to buy right now for a TFSA focused on passive income.

Read more »

Stocks for Beginners

How to Start Investing in a TFSA in a Down Market

Are you interested in starting a TFSA during a down market? Here are a few tips to keep in mind.

Read more »

Gold bullion on a chart
Metals and Mining Stocks

Is Barrick Gold Stock a Hedge Against Inflation?

Barrick Gold is among the largest gold mining companies globally. Is the stock a good bet amid rising inflation rates…

Read more »

Make a choice, path to success, sign
Stocks for Beginners

TFSA Investors: Must-Have Stock Strategies for Your Retirement

While reliable income stocks could help TFSA investors reduce their risk profile, high-growth stocks have the potential to significantly multiply…

Read more »

Happy diverse people together in the park
Stocks for Beginners

3 Stocks New Investors Should Buy Today

The stock market has been hard to gauge for the past year or so. Which stocks should new investors be…

Read more »

Growing plant shoots on coins
Tech Stocks

Market Correction: Don’t Miss These TSX Growth Stocks

Long-term investors shouldn’t miss this correction to accumulate top TSX growth stocks at prices well below their highs.

Read more »