The Toys & Games industry has long been seen as the bellwether for global economic wealth. The industry is the first to register growth when the over-all scenarios show positive signs. In recent times, however, the industry has suffered due to increased competition from Chinese products, but recent trends suggest an encouraging outlook. For 2012, the industry reported sales of $16.5 billion down marginally from $16.6 billion recorded in 2011. With almost saturated home markets, the companies are turning to global markets for growth.
With this backdrop, let us analyze three stocks on the basis of their current quarter results, the key ratios and future growth prospects.
*As of 5/21/2013
Hasbro, Inc. (NASDAQ:HAS) provides children and family globally with leisure time products and services. The shares are up 33.0% year-to-date. In order to keep the interest lit up amongst the new generation, Hasbro continually upgrades previous versions of its products every few years.
The company monetized further on its Transformers and G.I.Joe products by making movies about them. Another upcoming blockbuster which the company is looking forward to is My Little Pony.
Hasbro is well-positioned to draw profits from its latest movie release, G.I. Joe: Retaliation. Iron Man 3 has also done well for the company. The next in line is Thor and Transformers in 2014, which will definitely contribute heavily to the company. Star Wars is also due out in 2015. The idea behind putting these details in consideration is that the company has a good line-up for the next two years, which makes its future prospects strong.
For the first quarter, the net revenues for the company came in at $663.7 million, an increase of 2% compared to $648.9 million in 2012. The company reported loss in its in international segment at $4.5 million compared to an operating loss of $5.1 million in 2012. Hasbro is trying to overcome this weakness and has undertaken cost savings initiatives in order to utilize its resources better and is also looking forward to saving $100 million by 2015.
Hasbro has a P/E ratio of 18.84 which is not very low. The forward P/E is around 14. The valuation metrics indicate that the company might be slightly overvalued at present, but has good prospects for future growth.
Mattel, Inc. (NASDAQ:MAT), along with its subsidiaries, designs, manufactures and markets various toy products. The toy firm operates through three divisions: North America, International and American Girl.
Mattel has in its portfolio some of the most popular brands like Barbie, Hot Wheels, Dora the Explorer and American Girl. The company has also acquired HIT Entertainment and added two other famous characters to its portfolio: Thomas & Friends and Bob the Builder. The Monster High product series also saw considerable growth. Launched in 1986, the American Girl series was acquired by Mattel in 1998 and is one of its highest contributing segments at 32%. Another brand, Max Steel, was launched in South America in 2001 and has added $100 million per year in revenue, according to Forbes. The new additions along with earlier brands ensure positive expectations for the time ahead.
For the first quarter of 2013, the profit for the company came in at $38.5 million or $0.11 per share, an increase over $7.8 million, or $0.02 per share in the corresponding quarter of the previous year. Its gross margin increased to 54.2% from 51%.
Mattel has been performing well recently, enhancing its net income, revenue and its financial position. Its debt levels are stable and there has been growth in the earnings per share as well as profit margins, though the cash flow is a little disappointing. Mattel's P/E ratio is 20.25, which is even more than Hasbro. The forward P/E is 15.03, which again reflects that the company is slightly overvalued.
Choosing between Mattel and Hasbro is a difficult task. Both companies have growth drivers in their respective pipelines, which look sufficient to carry the momentum forward. While both have been performing well, there is concern surrounding Hasbro's international operations, which suffered a loss in 2012; Mattel, on the other hand, is performing well internationally. Though Hasbro is working on this issue, it does make the company weaker relative to Mattel. Both companies are a good bet for both the short and long term, but if one has to bet which is the best, Mattel has to be the one.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: Black Coral Research is a team of writers who provide unique perspective to help inspire investors. This article was written Aman Jain, one of our Senior Analysts. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article. Black Coral Research is not a registered investment advisor or broker/dealer. Readers are advised that the material contained herein should be used solely for informational purposes. Investing involves risk, including the loss of principal. Readers are solely responsible for their own investment decisions.