Ever since Toys “R” Us shuttered its U.S.-based locations, the toy industry has been enduring a world of pain. To this day, Spin Master (TSX: TOY), Canada’s top toymaker, has been stuck in the doghouse, with shares now down 33% from their June 2018 all-time highs.
So, I guess you could say the huge void in the toy retail scene has caused Spin Master has fallen into a tailspin!
Year to date, the stock has been fluctuating like a sine wave between $35 and $45 (shares are currently caught in the middle of the range), providing an opportunity for investors to make a quick buck by trading the bottom of the range and ditching near the top. But for those with a longer-term time horizon, is there any point in placing a bet in the former mid-cap growth darling? Or is the company behind some of the most cherished kid’s brands destined to become a perennial underperformer?
I think Spin is still a fantastic company that could bounce back as soon as next year, as industry headwinds gradually subside.
Spin may have an impressive lineup of toys for the 2019 holiday season, with a new line of Hatchimals and Juno the baby elephant (number 3 of the top 10 toys for 2019, according to Bank of Montreal), but with U.S. toy sales expected to remain muted for the year, it seems as though most investors have prematurely thrown in the towel on a name that could be in for a massive upside surprise come the release of its holiday-including quarter.
The bar is set relatively low for Spin. The Hatchimals hype has died down. And there’s potential for the industry to sport better-than-expected toy sales, as holiday shoppers become that much more generous because of the market’s recent rally and diminished fears of a looming recession — a peachier outlook overall.
For now, Spin continues to rack up the toy awards, and as the smaller firms within the toy industry continue feeling the pressure, I see a scenario where Spin can make several accretive acquisitions at below intrinsic value given Spin’s balance sheet is swimming with cash.
Spin still has plenty of medium-term growth catalysts, and once the economy can return to high gear, I see the company making an abrupt return to the high-growth track as soon as next year.
