Today’s Top Buy: Spin Master Corp.

Here’s why I think Spin Master Corp. (TSX:TOY) could be one of the best turnaround plays post-pandemic on the TSX right now.

| More on:
value for money

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

Discretionary spending fell significantly following the pandemic-induced economic turmoil. People cut down on discretionary spending. Given the highly discretionary nature of Spin Master‘s (TSX:TOY) product offering, some investors have steered clear of this name.

However, I think there’s the real potential for this stock to be an outperformer coming out of this pandemic.

Here’s more on why Spin Master is a top turnaround play right now.

A sharp rise in sales makes investors bullish

The company recently recorded substantial growth in its digital games segment. Revenue in this division increased by more than 400% to a staggering $31.8 million in the most recent quarter. A key driver? The company’s Toca Life World app has been a hit among users. Spin Master has a knack for finding the trendy toys that are “in” each year. The ability for users to share videos of themselves playing this game have caught on. Accordingly, there has been a sharp rise in the number of app downloads, benefiting Spin Master shareholders.

Although users can download this app for free, Spin Master Corp. earns revenue via in-app purchases and upgrades. Indeed, the company believes that the increase in subscribers of Spin Master’s Sago Mini kids’ app has partly contributed to its top-line growth.

As per company reports, its net income in Q4 was $300,000. This is a pretty big jump from a net loss of $17.2 million in the previous year, and investors are taking notice.

Investors remain optimistic about the future

Last year, the company closed down 13 distribution centres in a cost-cutting mission. Additionally, the company reduced its inventory by 28%. Spin Master has done a great job of boosting cash flows by getting more efficient with its capital allocation. This has been reflected in Spin Master’s results.  The company announced that it had generated $124 million worth of free cash flow in the latest quarter and $230 million for the full year. Also, Spin Master declared that it has the strongest net cash position in history due to its efficient cost-cutting strategy.

For the past year, consumers have been allocating a large portion of their savings to pay off their debt. However, I believe that coming out of the pandemic, they would be looking for other ways to spend that money. Accordingly, discretionary spending is expected to boom.

With a significant improvement in sales and an effective cost-cutting strategy, investors are betting that Spin Master will do well. I think the company has made all the right moves and is well positioned to grow profitably from here. Accordingly, now is the time for value investors to start re-considering this stock as a top turnaround play.

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 Chris MacDonald has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Spin Master.

More on Investing

edit U-turn
Tech Stocks

Can Shopify (TSX:SHOP) and Lightspeed (TSX:LSPD) Recover Before 2023?

Shares of these omnichannel commerce-enabling companies are down over 80%, creating a solid buying opportunity.

Read more »

ETF chart stocks
Dividend Stocks

3 ETFs to Buy Now and Hold for Decades

Holding reliable growth ETFs for decades is one of the most tried and tested ways of building your wealth over…

Read more »

edit Back view of hugging couple standing with real estate agent in front of house for sale
Dividend Stocks

Housing Affordability Is Out of Reach for Many Canadians

The interest rate hikes will cool the real estate market, but the housing affordability crisis would worsen, as homeownership and…

Read more »

TFSA and coins
Investing

3 Oversold Stocks to Buy for a TFSA

Manulife Financial (TSX:MFC)(NYSE:MFC) and two other oversold TSX stocks could be top long-term holds for a TFSA retirement fund.

Read more »

protect, safe, trust
Stocks for Beginners

2 Safe Stocks Beginners Can Buy for Reliable Passive Income

If you are a beginner investor looking for safe, reliable passive income, I've got two TSX stocks you can rely…

Read more »

Dollar symbol and Canadian flag on keyboard
Dividend Stocks

2 Oversold Great Canadian Dividend Stocks to Buy Now and Own for 20 Years

These top Canadian dividend stocks look oversold right now and continue to raise their payouts.

Read more »

Man holding magnifying glass over a document
Dividend Stocks

3 Value TSX Stocks to Eye in July 2022

Here are a few value TSX stocks to check out in July 2022. They also pay juicy, safe dividend income…

Read more »

sad concerned deep in thought
Cryptocurrency

Elon Musk Buys Dogecoin: Should You?

Elon Musk is back to buying Dogecoin (CRYPTO:DOGE). Should you join him?

Read more »