Not every Canadian stock has been participating in the great TSX Index rally of 2026. And while turnaround plays can be a real test of investor patience, I still think that it makes sense to consider the risk/reward profile in the names that have already been slapped with a vicious correction or worse. In the case of toymaker Spin Master (TSX:TOY), the stock has already lost around 63% of its value from the 2018 peak. Indeed, the consumer spending environment isn’t in the healthiest spot.
Buying after Spin Master stock’s tailspin
Add inflationary pressures and the most recent rise in oil prices, and it feels like Spin Master is destined to be a perennial underperformer in spite of its strong, deep portfolio of brands. Indeed, sometimes it takes more than a great lineup of brands to command pricing power in a climate that’s been nothing short of challenging for Canadian consumers.
Of course, the holiday season is when Spin Master tends to shine brightest, but with the Canadian economy wandering through another inflationary period, questions linger as to whether Spin Master will be able to make the most of the period of seasonal strength.
Spin Master may have lost its way, and despite the vicious implosion in the shares, I think there’s a pretty strong case for giving the name the benefit of the doubt, especially at these rock-bottom valuations. As the firm looks to do its best to alleviate margin pressures while looking to share repurchases (at a time of seemingly severe undervaluation), I do think the road ahead could be a lot smoother for a firm that many investors have already thrown in the towel on.
What Spin’s been doing right
Combined with the growing entertainment business (think digital games), I do think Spin Master might have what it takes to ride out what remains of the brutal headwinds facing the broader toy industry. Certainly, Spin Master isn’t alone in a market that’s been incredibly weighed down of late. Investors might be right to question whether management can kick off a turnaround.
There are execution risks for sure, and the top bosses need to prove that they can turn the ship around. In terms of potential catalysts that lie ahead, I do think that Spin Master’s entry into trading cards with Hellbreak could hit the spot. Of course, Pokémon and Magic: The Gathering have been profoundly powerful portfolio diversifiers for other firms.
And while investors should temper their expectations, I do think that the horror-themed card game, which might cater to collectors, is a high-reward endeavour with a fairly low risk profile. Any way you look at it, Spin Master is a $2.1 billion mid-cap stock that most have forgotten about. As the firm looks to get back on its feet, I do think that a correction to the upside could be in the cards within the next two to three years.
The bottom line
At 10.9 times forward price-to-earnings (P/E), shares look incredibly cheap, but they could prove even cheaper if demand starts marching higher in the second half as the firm looks to dodge and weave past more inflationary jabs (higher shipping as a result of another oil spike?)
