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Friday, May 29th, 2015


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Stock Spotlight: Toys and Games

He who dies with the most toy stocks wins, right? Well, maybe. The toy industry is approximately a $7.5 billion business, and that, folks, is a heckuva lot of Legos. So, whether you’re a Barbie girl in a Barbie world or a G.I. Joe with a kung fu grip, let’s take a look and see if toy stocks are the perfect gift or if too much assembly is required to invest.

Hasbro Inc. (HAS)

Snapshot: Hasbro provides children’s and family leisure-time entertainment products and services. Hasbro also designs, manufactures and markets games and toys under the Playskool, Tonka, Super Soaker, Milton Bradley, Parker Brothers, Tiger and Wizards of the Coast brands.

Recent Price: $19.15

Pros:

  • Second quarter revenues exceeded analysts’ expectations by a Tonka Truck-paved $11 million mile. Shares shot up 9 percent on the news. Sounds great except for the fact that revenues dropped $45 million from the same quarter last year. The positive spin is if they pump up the stock nearly 10 percent on this so-so news; imagine what will happen when the news is actually good.
  • When you consider its $3.3 billion a year in revenues, profits of more than $210 million and a price-to-earnings ratio of 17, Hasbro’s numbers are not exactly Play Doh.
  • Hasbro is partnering with video game maker Navarre’s Encore Software Division to produce computerized versions of Monopoly, Yahtzee, Clue and Scrabble. Computer games are certainly a growth area, but a risky one at that.

Cons:

  • Help me Obi Won, you’re my only hope! Last year, Hasbro made a nifty $147 million in Star Wars revenues. But Anakin, how do you replace that cash this year and beyond now that the prequels are complete and any chances of a new movie are as remote as a galaxy far, far away?
  • Share prices have plummeted 10 percent year-over-year, despite a 9 percent one-day gain in July. In other words, the stock has been bleeding slowly over the past year and has just now begun to show something that resembles a heartbeat.
  • Full-year earnings are projected to fall 6 percent for 2006. This can be traced to Star Wars revenues being slashed with a light saber, thanks to a decreased interest in the products.

LeapFrog Enterprises Inc. (LF)

Snapshot: LeapFrog Enterprises designs, develops and markets technology-based educational products and related content. LeapFrog’s products enable everyone from infant to high school learn age-and skill-appropriate subject matter, including phonics, reading, writing, math, spelling, science, geography, history and music.

Recent Price: $10.20

Pros:

  • LeapFrog just made a bold leap in hiring former Orbitz and Swiss Air leader Jeffrey Katz as its new CEO. Investors are hoping that Katz can make LeapFrog jump out of the bog.
  • If you’re brave enough to take a chance on this stock, you will be buying at an 80 percent discount off the all-time high, with the looks of technical support at around $10 a share.
  • Analysts are expecting a 48 percent growth in profits for the next fiscal year, after a relatively flat year in 2006. If you can trust what they say, the prospects are looking as bright as a frog with a fly within tongue’s reach.

Cons:

  • “Leap’s Big Day” was when the stock traded near $50 a share. The problem is that was in 2003, and the shares are now 80 percent lower — hovering around $10 a share.
  • Despite the fact that share prices have sunk like a bad lily pad, LeapFrog Enterprises is still selling for 42 times earnings. So, any bad news could be still punished heavily by investors.
  • The Katz hiring is certainly a gamble that he can hop on over from the airline industry and turnaround a toy and game maker. Some experts believe he will need a parachute to prevent the company from getting further bogged down. After all, it isn’t easy making green.

Jakks Pacific Inc. (JAKK)

Snapshot: Jakks Pacific designs and markets a broad range of toys, writing instruments and other consumer products, with licenses to distribute Pokemon, Barney, World Wrestling Entertainment (WWE), Dora the Explorer, Blue’s Clues, Hello Kitty and SpongeBob SquarePants products.

Recent Price: $68.40

  • Perhaps you do know Jakks and its license to make toys based on Pokemon, Barney, the WWE and soon Rocky, to name a few. If Sylvester Stallone can make Rocky 6000, or whatever number it is, there could be a nice blockbuster toy market story here.
  • Hey Blue, a clue! A clue! Company shares are trading at a mere 10 times earnings — which are a nifty $1.65 a share. Looking at projected earnings for next year, shares trade at a mere 7 times profit expectations. That’s a recipe for share- price growth for value investors.
  • Thanks to sales of newly licensed Barney products, earnings are expected to rise by 7 percent or 16 cents a share next year. All together now, “I love you Jakks, you love me…we’re a happy toy company.”

Cons:

  • Jakk’s earnings are expected to fall by approximately 4.5 percent this year. Not even Barney can spin his magic spell on those numbers.
  • The stock has a history of wild swings in price – almost like an out-of-the-blue left hook from Rocky Balboa.
  • Company has a recent history of disappointing Wall Street to the tune of coming in as much as 40 percent below the last two quarter’s earnings expectations. This kind of wishful thinking is not the way to endear yourself to investors. In other words, hype is good for the WWE, but not exactly good for earnings expectations.

Michael Abramowitz is a freelance writer based in Florida. To avoid a conflict of interest, he does not currently own any of the stocks mentioned above. However, he does own shares in toy company competitor Mattel.

© 2008, Young Money Media, LLC. All rights reserved.

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