Toy and games company Mattel (MAT 0.45%) has been locked in a long battle with Hasbro (HAS -0.38%). For now, it seems that Hasbro is winning the toy war since its stock has been the better performer of the two over the past year.

However, it's useful to remember that past is not prologue. A company that is yesterday's loser can become tomorrow's winner, assuming it can right its wrongs. Mattel could be such a company. It's done poorly to start the year based on sluggish sales and overarching concerns that toys and board games are going the way of the buggy whip in the digital world.

Source: Wikimedia Commons

Rest assured that Mattel isn't sitting idly by, content to watch its business erode. Instead, it's getting proactive. Mattel is launching a number of initiatives to break the chains of traditional toys and games. One such initiative is a partnership with Amazon.com (AMZN -1.11%).

Mattel makes a strategic advancement
Critics who say Mattel's core toys and games businesses are losing favor have plenty of ammunition. Indeed, Mattel's sales fell 6% in the fourth quarter, which is a crucial period for toy makers since it encapsulates the holiday shopping season. Things didn't get a whole lot better for Mattel after that, as it reported a 5% decline in revenue in the first quarter of 2014.

Mattel's core brands, which propelled the company into the multi-billion dollar enterprise it is today, are the primary contributors to its current decline. Barbie sales collapsed 14% in the first quarter, while Fisher-Price posted a 6% drop in revenue in the same period. This resulted in Mattel posting a surprise net loss in the first quarter.

Even more disturbing is that Mattel seems to be suffering to a greater extent than close rival Hasbro. Hasbro's revenue stayed flat in the critical fourth quarter. Sales then rose 2% in the first quarter of this year, which allowed the company to remain profitable while Mattel swung to a loss. Strong international sales were a primary contributor, as the company's emerging markets initiative is gaining traction. In fact, Hasbro's sales in the emerging markets jumped 25% last year.

Mattel is growing internationally as well, but it's clearly not enough to lift the entire company. One of Mattel's core objectives, which was stressed during its last earnings release, is to branch out into new categories. Fortunately, such an opportunity has come along in the form of an exciting partnership with Amazon. According to The New York Times, the two companies are preparing the launch of a children's cartoon called Fireman Sam, which is a hit internationally but has yet to be brought to the United States.

About 75 episodes of the cartoon will be available by year-end. And just as you'd expect, merchandise will be soon to follow. Episodes and themed products will be sold exclusively on Amazon. This will provide children instant access to the show and parents equally instant access to merchandise. In a sense, this partnership will simultaneously create and fulfill consumer demand.

Partnering with Amazon will provide Mattel two major opportunities at the entertainment and retail levels. Amazon's status as the largest online retailer will allow consumers to instantly purchase Fireman Sam products after watching the show. This comes at just the right time for Mattel, since children are increasingly consuming entertainment on devices.

Value and dividends that aren't toying with you
Mattel might scare you off because it's lost roughly 20% of its market value year to date. What remains, however, is a cheap stock with positive catalysts for future growth and a solid 4% dividend.

Mattel might not produce outstanding growth from its flagship toys and board games this year, but with a forward P/E multiple of just 13, it doesn't have to. Simply returning to growth combined with its strong dividend could easily provide satisfactory returns. Plus, growth might come in even better than expected this year if its foray into digital entertainment through its partnership with Amazon pays off.

For these reasons, you'd be foolish (small 'f') to write off Mattel.