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

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

Canadian Dollars
Stock Market

Where to Invest $5,000 in April 2024

Do you have some extra cash to spare? Here are five companies to invest $5,000 in next month.

Read more »

Plane on runway, aircraft
Stocks for Beginners

Up 53% From its 52-Week Low, Is Cargojet Stock Still a Buy?

Cargojet (TSX:CJT) stock is up a whopping 53%, nearing closer to 52-week highs from 52-week lows, so what's next for…

Read more »

Question marks in a pile
Bank Stocks

Should You Buy Canadian Western Bank for its 4.8% Dividend Yield?

Down 35% from all-time highs, Canadian Western Bank offers a tasty dividend yield of 4.8%. Is the TSX bank stock…

Read more »

Gold bars
Metals and Mining Stocks

Why Alamos Gold Jumped 7% on Wednesday

Alamos (TSX:AGI) stock and Argonaut Gold (TSX:AR) surged after the companies announced a friendly acquisition for $325 million.

Read more »

tsx today
Stock Market

TSX Today: Why Record-Breaking Rally Could Extend on Thursday, March 28

The main TSX index closed above the 22,000 level for the first time yesterday and remains on track to post…

Read more »

Nuclear power station cooling tower
Metals and Mining Stocks

If You’d Invested $1,000 in Cameco Stock 5 Years Ago, This Is How Much You’d Have Now

Cameco (TSX:CCO) stock still looks undervalued, despite a 258% rally. Can the uranium miner deliver more capital gains to shareholders?

Read more »

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Dividend Stocks

TFSA Magic: Earn Enormous Passive Income That the CRA Can’t Touch

If you're seeking out passive income, with zero taxes involved, then get on board with a TFSA and this portfolio…

Read more »

potted green plant grows up in arrow shape
Stocks for Beginners

3 Growth Stocks I’m Buying in April

These three growth stocks are up in the last year, and that is likely to continue on as we keep…

Read more »