1 Cheap Canadian Stock Down 63% to Buy and Hold

Spin Master (TSX:TOY) could be a deep-value stock to load up on in the second half.

Key Points
  • Not all TSX stocks are rallying, and beaten-down turnaround names like Spin Master can offer compelling risk/reward if you’re willing to be patient through a weak consumer backdrop.
  • After falling about 63% from its 2018 peak, Spin Master looks cheap around 10.9x forward earnings, with potential catalysts from cost/margin fixes, buybacks, a growing digital entertainment business, and a new trading-card push that could drive a rebound over the next few years.

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.

box of children's toys

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?)

Fool contributor Joey Frenette has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Investing

senior couple looks at investing statements
Dividend Stocks

Don’t Forget These Costs When Calculating Your Retirement Savings Number

Your retirement number may be too low. See the taxes, inflation, health and care costs Canadians often miss, and how…

Read more »

Canadian investor contemplating U.S. stocks with multiple doors to choose from.
Dividend Stocks

Enbridge vs. Telus as a Dividend Stock: Which One Wins?

Enbridge and Telus operate established businesses and offer high yields, but their recent dividend strategies have changed.

Read more »

The RRSP (Canadian Registered Retirement Savings Plan) is a smart way to save and invest for the future
Stocks for Beginners

What $10,000 a Year in Your RRSP Becomes Over 30 Years

Annual $10,000 RRSP contributions could approach $791,000, but costs, contribution timing, and your tax refund can change the outcome.

Read more »

tsx today
Stock Market

TSX Today: What to Watch for in Stocks on Thursday, October 15

After yesterday’s sharp decline, TSX investors will closely watch U.S. wholesale inflation and retail sales reports today, while mixed commodity…

Read more »

money goes up and down in balance
Investing

What’s Going on With goeasy’s Dividend?

As goeasy’s management is working to stabilize the business and improve its credit performance, its dividend could remain suspended.

Read more »

golden sunset in crude oil refinery with pipeline system
Dividend Stocks

Telus and BCE Are Struggling: The Stock I’d Buy Instead Yields 5.8%

This Canadian stock yields about 5.8% and has a solid dividend growth history backed by a resilient business model and…

Read more »

man shops at grocery store
Investing

I’m Betting on Dollarama’s Latin American Growth After 29 New Stores in One Quarter

Dollarama stock continues to benefit from positive momentum in its retail operations in all countries that it operates.

Read more »

A worker gives a business presentation.
Stocks for Beginners

September Inflation Lands October 19: What It Means for Your Mortgage Rate

September inflation could change mortgage offers before the Bank of Canada acts. Here’s how to prepare without predicting the report.

Read more »