Please ensure Javascript is enabled for purposes of website accessibility

Why Mattel Inc's Stock Is Up 18% This Year

By Demitri Kalogeropoulos - Jul 8, 2016 at 9:45AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Hints of a sales rebound coupled with its huge dividend yield have helped the toymaker outperform rival Hasbro in 2016.

What: Toy and game retailer Mattel (MAT 3.17%) saw its stock jump 18% through the first half of the year, according to data provided by S&P Global Market Intelligence.

MAT Chart

Data through July 6. MAT data by YCharts.

That performance is trouncing rival Hasbro (HAS 1.27%) over the past 52 weeks, yet long-term investors aren't nearly recovered from the all-time high that they witnessed of about $50 per share through much of 2013.

So what: Mattel's two quarterly releases so far this year have painted a mixed picture of operating trends. Its holiday period marked an encouraging return to sales growth as the Barbie, Fischer-Price, and Hot Wheels brands met healthy demand. Cost cuts produced a sharp rise in profitability, as well.

Image source: Mattel.

However, Mattel's Q1 was marked by plunging results from its girls segment that used to include sales from its licensing deal with Disney (DIS 3.51%) for the Disney Princess line of products. That exclusive arrangement has now shifted over to Hasbro, and the change left a gaping hole in Mattel's portfolio. The girls segment slumped by 36% in Q2, overwhelming growth in other categories to push sales down by 7% overall. Mattel's net loss expanded to $94 million from $73 million in the year-ago quarter.

Now what: Mattel will post second-quarter results on July 20, and consensus estimates project a 1% sales decline and 11% higher earnings. That hardly seems to justify a valuation that's risen to 24 times earnings for a significant premium over Hasbro.

Mattel's hefty dividend yield likely explains some of that valuation gap since it delivers an almost 5% yield compared to Hasbro's 2.5%. However, the retailer's recent earnings pace isn't strong enough to sustain that dividend since its payout ratio has spiked to well over 100% of profits. Cash flow provides better support, but the dividend payment can't continue at that level without an improving bottom line. That's why better earnings will be critical for Mattel's stock to sustain its positive momentum.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Mattel, Inc. Stock Quote
Mattel, Inc.
$24.72 (3.17%) $0.76
The Walt Disney Company Stock Quote
The Walt Disney Company
$109.32 (3.51%) $3.71
Hasbro, Inc. Stock Quote
Hasbro, Inc.
$87.08 (1.27%) $1.09

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/28/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.