Down 14%: Is This Toymaker Stock a Good Buy in MAY 2024?

The right time to buy a discounted stock can be difficult to pin down, especially when there are no clear signs of recovery.

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From cinema to casinos, entertainment businesses, and by extension, entertainment stocks come in various forms. However, most of these lean towards entertainment for adults, and if you want to look into companies that focus on entertainment for children, your choices in Canada are relatively limited. However, the premier choice is Spin Master (TSX:TOY).

A toymaker and entertainment company

Spin Master has been around since 1994. Its original business, the idea it was founded upon, was toys. Since then, it has expanded its product portfolio. Now, in addition to toys, it also creates digital games and has an entertainment segment, which includes famous cartoons like Paw Patrol.

Out of its three main business segments, toy revenue makes up the lion’s share (about 80% in 2023). This aligns with the company’s goal of becoming one of the largest toymakers in the world. However, it’s the entertainment segment that has experienced the most significant growth and may continue to be the most rapidly growing business segment of Spin Masters.

The stock

The stock has gone through multiple bearish and bullish phases in the last five years. The 2020 market crash pushed the stock down over 70% in less than a quarter, but TOY made a swift enough recovery. It reclaimed its pre-crash value by the first quarter of 2021. However, since then, its performance has been shaky at best. The stock hovered around the mid-$40s for most of 2021 and 2022.

Then after a sharp fall, the toy stock spent more than a year near the mid-$30s, and now it has fallen below the $30 mark. The shares have fallen by around 14% this year alone. The only significant benefit of this persistent slump has been the rise in its dividend yield, which is currently at 1.6%. The yield may be low but it’s backed up by a solid payout ratio, and the company has decided to double its payouts.

That’s a significant enough increase to attract new investors, which may trigger a stock recovery. But one thing that you should also take into account is its valuation. Despite the long-term slump, the company is still a bit overvalued.

Foolish takeaway

Spin Master may not be a very attractive buy in May 2024. We have yet to see its bear market phase turn bullish for good, and until it does, you will have a chance to buy the stock at an even more heavily discounted price (with a relatively heftier yield).

So even though it’s a good idea to keep a close eye on this stock and buy just before or after it goes bullish, the chances of that happening before May 2024 is over are quite low.

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 Adam Othman has no position in any of the stocks mentioned. The Motley Fool recommends Spin Master. The Motley Fool has a disclosure policy.

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