What happened

Shares of Mattel (NASDAQ:MAT) dropped on Tuesday after the toy maker was downgraded by UBS. Fears of a full-blown trade war could also be playing a role. Mattel stock was down about 5.3% at 12:35 p.m. EDT.

So what

UBS downgraded shares of Mattel on Tuesday to neutral, replacing a previous buy rating. UBS kept its price target at $17 per share, so the downgrade appears to be due to Mattel's rally over the past few months. Prior to Tuesday's slump, Mattel stock was up nearly 30% over the past three months.

A declining chart.

Image source: Getty Images.

Also in the mix is the escalating trade situation between the United States and China. President Trump threatened to slap tariffs on an additional $200 billion of Chinese goods, a move that will almost certainly be met with some form of retaliation. Mattel has manufacturing facilities in China, and sales in the Asia-Pacific region totaled $547 million in 2017, about 11% of the company's total revenue.

Now what

The double-digit gains for Mattel stock over the past few months have not been related to the company's performance. During the first quarter, global net sales dropped 4% year over year, while adjusted operating loss expanded to $160.5 million. That's down from a loss of $120.7 million during the prior-year period, even after excluding the negative impact of the Toys "R" Us bankruptcy and other one-time items.

Mattel's recent strong performance seems to be a case of the stock bouncing off lows not seen since the financial crisis nearly a decade ago. For the stock to continue moving higher, the company needs to start showing signs of improvement.

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.