What happened

Shares of toy maker Mattel (NASDAQ:MAT) surged on Monday, erasing the loss suffered last week following the company's disastrous third quarter. Speculation about a possible takeover seems to be the main driver. The stock was up about 11.5% at 3:45 p.m. EDT.

So what

A report from Gerrick Johnson, an analyst at BMO Capital Markets, suggested that Mattel could be a takeover target after its dismal results. Mattel's third-quarter earnings report featured a double-digit revenue decline, a steep drop in earnings, and the suspension of the dividend. The Toys R Us bankruptcy was a major headwind, but Mattel has been facing weak demand for its core brands for years.

The Barbie logo

Image source: Mattel.

Johnson believes Mattel's manufacturing assets and brands could be worth more than $10 billion in a sale, about double the company's current market capitalization. Shares of Mattel have plummeted 55% since mid-2016, as the company's long-awaited turnaround failed to materialize.

Johnson has a price target of $20 on the stock along with the equivalent of a "buy" rating.

Now what

Investors should remember that this talk of a takeover is purely speculation. A buyer would need to figure out a way to turn around the company's struggling brands, something that Mattel has failed to do over the past few years.

Investors willing to bet on a risky turnaround play should put Mattel on their radars. But the hope of a buyout shouldn't be the only reason for buying the stock.

Timothy Green has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.