Since last writing about Hasbro (HAS) and picking up some of its shares back in mid-June, it seems the stock may have hit a double top of $48/share and is on its way down from that double top. I picked up shares of Hasbro back on 12Jun13, and since then the stock is only up 1.52% and has been lagging the broader market as measured by the S&P 500 which has gained 4.05%. Hasbro is set to take in additional revenue after having extended an agreement with Electronic Arts (EA) allowing them to develop some of Hasbro's best selling game brands for mobile platforms around the world. With this in mind I'd like to take a fundamental, financial, and technical look at the stock right now to determine if it is worth picking up some additional shares in the company to be able to capitalize on this deal.
Hasbro currently trades at a trailing 12-month P/E ratio of 18.15, which is fairly priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 14.17 is currently inexpensively priced for the future in terms of the right here, right now. Next year's estimated earnings are $3.20/share and I'd consider the stock cheap until at least $48 (which is where the double top currently resides). The PEG ratio (1.88), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 5-year horizon), tells me that Hasbro is fairly priced based on a 5-year EPS growth rate of 9.67%.
On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. Hasbro boasts a dividend of 3.53% with a payout ratio of 58.3% based on earnings while sporting return on assets, equity and investment values of 7.9%, 22.5% and 13.9%, respectively; which are all respectable values. If maybe you feel the market will retract a little more and would like a safety play, then the 3.53% yield of this company is good enough for you to take shelter in for the time being.
Looking first at the relative strength index chart (RSI) at the top, I see the stock muddling around in middle ground with a value of 45.17 but with some downward trajectory. Next, I will look at the moving average convergence-divergence (MACD) chart and see that the black line is coming below the red line with the divergence bars about to increase in height toward the negative side indicating the stock has downward momentum. As for the stock price itself ($45.38), I see the 20-day and 50-day moving averages acting as resistance and $44.54 acting as support. If the stock can break through resistance I believe it can hit $46.41, and if it breaks to the downside of support I see it going to $43.75 providing for a risk/reward ratio of -3.59% to 2.27%. Personally, that is not rewarding enough for me to go buying into it.
- Electronic Arts and Hasbro extended their partnership for four years where Electronic Arts will create games based on Hasbro franchises for mobile platforms on a global scale. This deal bodes well for Hasbro as it can take in additional revenue because mobile is where everything is headed these days.
- Hasbro obviously sees that everything is headed to mobile platforms as it has acquired a 70% stake in Backflip Studios, a mobile games developer. Backflip's portfolio of top ranked games have been downloaded over 300 million times and are played by more than 30 million active users per month. Mobile monetization is a key metric measured at all the tech companies and I believe if Hasbro can unlock that metric as the tech companies do, then this company can make money hand over fist.
- Hasbro goes ex-dividend on 30Jul13 for $0.40 per share with a pay date of 15Aug13.
Hasbro is still cheap based on future earnings, though it has gotten a tiny bit more expensive from when I first wrote about it. The company is fairly priced based on future growth prospects, but I believe that can be turned around once these mobile gaming transactions are monetized to their fullest potential. The Backflip investment is said to be accretive to 2013 financial results, which is a pretty quick turnaround. If Hasbro can find additional mobile gaming companies which can provide the same type of return that Backflip can, we most certainly can see great growth potential at the company. Financially, the payout ratio is a bit higher than what I usually like it to be, but at a dividend rate of 3.53% I'm not going to complain about it right now. The technical situation of how the stock is currently trading is what is disconcerting about it. A double top indicates that the stock can't make the new high and retreats to where the low part of the support is, which in this case looks to be $43.75 to me. But it has to break that support level before it can be confirmed as a double top. Personally I'm going to hold off on purchasing any of it until I see it get to oversold territory on the RSI chart and confirm it with a bullish pattern on the MACD chart; for now, I will be content with my 1.52% gain on my initial position with the ex-dividend date coming soon.
Disclaimer: These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!