Alta Fox Capital Management might be successful in getting Hasbro to make changes, but I believe rival Mattel (MAT 0.61%) offers an easier path to market-beating returns.
Mattel is cheaper and offers better growth
Hasbro is coming off a strong fourth-quarter earnings report, but management issued disappointing guidance that didn't give investors much reason to send the share price higher. The company expects revenue to grow at a low single-digit rate in 2022. Analysts currently expect Hasbro to post revenue growth of 3.3%, with adjusted earnings per share falling slightly over 2021.
In its letter to Hasbro, Alta Fox Capital pointed out that this guidance looks weak compared to Mattel's 2022 outlook, which calls for high single-digit revenue growth and double-digit EBITDA (earnings before interest, taxes, depreciation, and amortization) growth.
Mattel not only expects faster growth than Hasbro in 2022, but it also sees continued growth in 2023. Building on Mattel's momentum is a recent agreement with Walt Disney to make dolls for the popular Disney Princess and Frozen properties.
Mattel currently trades at a forward price-to-earnings (P/E) ratio of 17 -- a discount to Hasbro's forward P/E of 19 despite Hasbro calling for slower top-line growth this year.
The investment firm believes holding Hasbro to better standards of capital allocation and spinning off its Wizards of the Coast gaming segment could send the stock to $200 per share, which is double Hasbro's current trading price.
But Mattel may have an easier path to similar returns over the next few years without the distraction from an activist investor. Mattel trades at just 13 times management's early guidance for 2023. This paves the way for Mattel stock to nearly double in value over the next two years if investors award the Barbie maker the same P/E as Hasbro, which I believe is likely with the new Disney deal in place.