December 11, 2020

3 Toys & Games Stocks to Snap Up Despite COVID-19 Woes

By haziqbinarif


The Zacks Toys – Games – Hobbies industry has been benefiting from robust gaming and educational demand. The industry participants have been undertaking efforts on the digital front and focusing on better execution of marketing and promotional initiatives to drive growth.

Stocks like Mattel, Inc. (MAT), Glu Mobile Inc. (GLUU) and JAKKS Pacific, Inc. (JAKK) are likely to gain from the aforementioned industry trend.

Industry Description

The Zacks Toys – Games – Hobbies industry comprises companies that design, manufacture and sells various games and toys. While traditional toy makers primarily focus on marketing and selling action figures, accessories, dolls, youth electronics, and arts and crafts, some of the industry participants also develop and market content and services on video game consoles, personal computers and mobile.

3 Trends Shaping the Future of Zacks Toys – Games – Hobbies Industry

Pandemic Driving Toys Demand: Although coronavirus-induced shutdowns have hurt most industries, toy makers have been gaining from the pandemic. With kids stuck at home, parents have been buying toys in bulk to keep the children occupied and away from the TV while they work. While toy buying spree continues across the country, online sales of board games and building sets have also been on the rise. Per the NPD Group, U.S. toys sales in the first three quarters of 2020 increased 19%. Most of the toy companies are focusing on boosting online business. The industry is anticipated to perform robustly in 2021 and 2022. Hasbro, Inc. (HAS) is witnessing strong gaming demand amid this crisis scenario. The company has a strong gaming portfolio, and it is refining gaming experiences across a multitude of platforms like face-to-face gaming, off-the-board gaming and digital gaming experiences in mobile. Moreover, Hasbro witnessed sales growth in North America Barbie and games despite the pandemic. In North America, gross sales increased 13% year over year.

Educational Toys Gain Popularity: Amid declining sales of traditional toys, robust demand for educational toys has been quite a relief. Parents are focusing more on education toys to teach their children amid the pandemic. Per a Technavio report, educational toys are likely to reach $24.3 billion during 2020-2024, witnessing a CAGR of nearly 15%. Moreover, the industry players are banking on new distribution methods, development of digital-play components, exploration of ventures with other industries and focusing on international expansion to drive growth. The industry has enormous growth potential in China and Brazil as both the countries have a massive population of kids aged 0 to 14 years. Per U.S. Toy Industry Association, out of Brazil’s population of 200 million, 45.7 million are children under the age of 14 years. Meanwhile, China has 236 million kids below the age of 14 years. Notably, emerging markets offer greater opportunities for revenue growth than developed markets.

Shipments Disruption Remains a Woe: The coronavirus pandemic continues to hurt shipments, brick-and-mortar sales, and delivery of content in order to meet demand. Further, temporary store closures, product shortages, lower retail inventories, supply chain disruption and live-action production shutdowns might have been impacting performance. The industry is also likely to have been bearing the brunt of by production disruptions in China, which produces nearly 85% of the global toys, due to the coronavirus outbreak. Moreover, costs of shipping have increased due to the pandemic.

Zacks Industry Rank Indicates Bright Prospects

The Zacks Toys – Games – Hobbies industry is grouped within the broader Zacks Consumer Discretionary Sector.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates encouraging near-term prospects.

The Zacks Toys – Games – Hobbies industry currently carries a Zacks Industry Rank #55, which places it in the top 22% of 253 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1. Since Sep 30, 2020, the industry’s earnings estimates for the current year have moved north by 9.4%.

Before we present a few stocks that investors can take a look at, let’s analyze the industry’s recent stock-market performance and valuation picture.

Industry Outperforms Sector & S&P 500

The Zacks Toys – Games – Hobbies industry has outperformed the broader Zacks Consumer Discretionary sector and the S&P 500 Index over the past year. The industry has surged 34.4% over this period compared with the sector’s increase of 15.8%. Meanwhile, the S&P 500 Index rallied 18.5% in the same time frame.

                       One Year Price Performance

Industry’s Current Valuation

Comparing the industry with the S&P 500 Index on the basis of forward 12-month price-to-earnings, which is a commonly used multiple for valuing the industry, we see that the industry is trading at 27.33X, higher than the S&P 500’s 22.89X and the sector’s 34.44X.

Over the last five years, the industry has traded as high as 31.5X and as low as 19.51X, with the median being at 25.7X, as the chart shows.

 

3 Zacks Toys Pick to Keep an Eye on

Mattel: Headquartered in El Segundo, CA, Mattel is the world’s largest manufacturer of toys. Robust Barbie brand and How Wheels sales are driving its performance. In third-quarter 2020, gross sales at the Hot Wheels brand rose 7% on a reported basis and 9% on constant-currency basis. Moreover, Hot Wheels POS were up double digits in the quarter. The company has been witnessing improving sales trend for Hot Wheels and is quite confident about the brand’s long-term prospect. Moreover, per NPD, Barbie gained market share in the dolls category in the third quarter and was the number one toy property in the United States, Europe and Latin America.

Shares of this Zacks Rank #2 (Buy) company have gained 74.9% in the past six months compared with the industry’s growth of 18%. Moreover, the company’s 2021 earnings are anticipated to increase 33.7%. In the past 60 days, earnings estimate for 2021 has been revised upward by 145%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

                                     Price & Consensus: MAT

Glu Mobile: Headquartered in San Francisco, CA, Glu Mobile develops, publishes and markets free-to-play games for smartphone and tablet device users in the United States. Sharp increase in bookings continues to contribute to its performance. The company has provided preliminary bookings for 2021. The company anticipates bookings from our current live titles in the range of $595 million to $605 million, which indicates growth in the range of 8% to 10% year over year.

Shares of this Zacks Rank #2 company have surged 31.7% in the past three months compared with the industry’s growth of 9.2%. Moreover, the company’s earnings for 2021 are anticipated to increase 33.6%. In the past 60 days, earnings estimate for 2021 has been revised upward by 31.7%.

                                 Price & Consensus:GLUU

JAKKS Pacific: Headquartered in Santa Monica, CA, JAKKS Pacific is a multi-brand company that designs and markets a broad range of toys and consumer products. JAKKS Pacific’s strategic acquisitions, solid international footprint, focus on innovation and collaborations with popular brands and movie franchisees are likely to drive the top line. During the third quarter, the company made significant progress with respect to direct distribution in Italy, Spain, and Mexico. Moreover, it stated that the benefits of the same are likely to get reflected in 2021.

Shares of this Zacks Rank #2 company have appreciated 14.6% in the past three months compared with the industry’s growth of 9.2%. Moreover, the company’s earnings for 2021 are anticipated to increase 51%. In the past 60 days, loss estimate for 2021 have narrowed to $4.71 from a loss of $6.20.

                       Price & Consensus: JAKK

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Mattel, Inc. (MAT): Free Stock Analysis Report
 
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Hasbro, Inc. (HAS): Free Stock Analysis Report
 
Glu Mobile Inc. (GLUU): Free Stock Analysis Report
 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



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