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Is Spin Master (TSX:TOY) a Buy as Holiday Shopping Heats Up in December?

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Adult family preparing dinner on Christmas Day
Adult family preparing dinner on Christmas Day

Written by Amy Legate-Wolfe at The Motley Fool Canada

Retail stocks continue to be hit hard, as the earnings season comes to a close. Several companies in the United States were hit hard this week after huge earnings misses. And, of course, the one thing to blame: supply chain difficulties.

It’s an important point to pay attention to, as the holiday season heats up. Those hoping to see toys on the shelves for their kids could be disappointed with the supply chain disruptions continuing. — hence why so many companies continue to fall.

Yet there’s one that Motley Fool investors may actually see rise this holiday season: Spin Master (TSX:TOY).

Ahead of schedule

Spin Master stock actually managed to work around supply chain issues. It delivered products far ahead of schedule in early November to retailers. Clearly, the holidays are the most lucrative time of year for Spin Master. So, getting toys on the shelves is not just important; it’s necessary.

Spin Master stock tried to get ahead of the game by increasing production to create finished goods. It then moved them to retailers before the holiday rush. However, there are some areas where macro supply chain issues remain.

New waves of the pandemic are happening in China and Vietnam, and the two countries plus India and Mexico have all put pressure on production. Then there is the capacity to move products in the first place. Trucking and container availability is limited across North America.

Then there’s the rising cost of raw materials like plastic and electronic chips, plus freight costs. That could mean buyers don’t see the significant reductions in prices for goods this Black Friday.

Not just toys

If you’re a parent, it’s great to know there should be some toys on the shelves. But for Motley Fool investors, you don’t have to worry about the company suddenly losing steam. Spin Master stock has several lucrative ways of bringing in revenue that are completely unrelated to supply chain demands.

This includes feature films, such as the Paw Patrol: The Movie, which brought in US$135 million worldwide since August. Furthermore, the increase in Paw Patrol awareness led to an earlier purchase of the corresponding products. A second movie is due out in 2023.

Then there’s the company’s digital revenue, with its games attracting new subscribers. Furthermore, it launched Spin Master Ventures, investing $100 million in early-stage toy, entertainment, and digital games companies. So far, it’s picked up Winnipeg-based Hoot Reading and Stockholm-based Nordlight.

Strong earnings, and it’s not even the holidays!

Holiday shopping is the biggest contribution to Spin Master stock. However, the company is coming off the back of incredible earnings in the third quarter. During the last quarter, it reported US$135.4 million or US$1.29 per diluted share. This was almost double what it earned the year before.

Adjusted profits came in at US$132.6 million, with revenue reaching US$714.5 million — a 25% increase year over year. As the holidays heat up, management remains confident the company can deliver even more strong earnings during its next report.

“We are pleased with our strong performance, which puts us on very solid footing leading into the holiday season,” Max Rangel, Spin Master’s global president and chief executive officer, said.

Shares of Spin master stock are up 68% year to date, trading at $47 per share as of writing with a one-year target price of $56 by analysts.

The post Is Spin Master (TSX:TOY) a Buy as Holiday Shopping Heats Up in December? appeared first on The Motley Fool Canada.

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Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Spin Master Corp.

2021

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