While there are still uncertainties for the markets in the near term, market sell-offs have always led to bull markets later on. It's all about value. Lower stock prices mean investors can buy shares of a company's profits at a lower premium, which eventually leads to better returns.

A promising value stock to buy right now is top toy maker Mattel (MAT -1.02%). Despite the recent dip, the stock is up 105% over the last three years, outperforming the S&P 500's return of 46%, but the market is still not fully appreciating the company's improved revenue and profits over the last few years. 

While the Barbie owner reported a decline in sales during the fourth quarter of 2022, the company is making substantial progress toward being a more growth-driven toy company. Yet the stock still trades at a low price-to-earnings ratio of 13.5 based on this year's earnings estimates.

Here are three reasons the stock deserves a higher valuation.

1. Revenue is trending in the right direction

CEO Ynon Kreiz joined the company in 2018 and has orchestrated an impressive turnaround for the once-struggling toy maker that is pointing to a bright future.

In 2022, the company's sales were up over 20% from 2019.  

MAT Revenue (TTM) Chart

MAT Revenue (TTM) data by YCharts

The toy industry is expected to grow about 6% per year over the long term, and Mattel enters 2023 with a broader lineup of toys to drive more growth with last year's relaunch of Monster High Barbie, Polly Pocket, and Masters of the Universe

Moreover, the company has expanded its partnerships with Disney, Paramount, Universal, Warner Bros. Discovery, Microsoft, and Nintendo, which are catalysts. Building off its previous licensing wins to make toys from Disney Princess and Frozen properties, Mattel also completed a multiyear agreement to develop toys for Disney's Wish franchise, with the first products launching later this year. 

2. Improving profit margin

Along with higher sales, the company also has a lower cost structure, which is producing a higher profit margin. Stocks follow earnings over the long term, and Mattel's improving margin is leading to faster growth on the bottom line, which is another catalyst.

MAT Profit Margin Chart

MAT Profit Margin data by YCharts

With Microsoft, Mattel is leveraging the tech giant's Azure OpenAI service to design new Hot Wheels cars, which speeds up the creation process and is likely saving the company money. These efforts suggest that Mattel's profit margin could climb even higher in the AI revolution that is underway.

After seeing profits significantly improve over the last few years, management resumed share repurchases in 2023 for the first time in nine years. This indicates management expects to deliver sustained growth over the long term and sees value in the stock.

3. Barbie is trending

While sales are expected to be flat this year, Mattel is beginning to unleash its biggest toy brands in film and TV, which could drive greater sales growth as management syncs these releases with its consumer products business. This could potentially generate greater sales growth than the industry average.

Barbie is among the most valuable brands in the toy industry. Two animated Barbie movies debuted on Netflix last year, with more to come. There is also a highly-anticipated (and more adult-oriented) live-action Barbie movie from Warner Bros. that is set for release this summer. Mattel has a total of 12 series and specials in the works across different franchises.  

"We believe our franchise and consumer products business has the potential to become meaningfully larger and another growth engine for Mattel," Kreiz said during the company's investor presentation in March. 

Analysts expect Mattel to deliver annualized earnings growth of 11% over the next five years. This earnings growth, combined with a potentially higher P/E that is closer to the S&P 500 average of 22, should lead to market-beating returns over the next five years.