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.

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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.

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