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3 Stocks to Watch From the Promising Toys & Games Industry

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The Zacks Toys - Games – Hobbies industry has been benefiting from smart toys, STEM toys (Science, Technology, Engineering and Math), sports toys, and fashion dolls and accessories. The industry participants have been undertaking efforts on the digital front and focusing on better execution of marketing and promotional initiatives to drive growth. The industry players, including Hasbro, Inc. (HAS - Free Report) , Mattel, Inc. (MAT - Free Report) and JAKKS Pacific, Inc. (JAKK - Free Report) , are likely to gain from the aforementioned trends.

Industry Description

The Zacks Toys - Games – Hobbies industry comprises companies that design, manufacture and sell various games and toys. While traditional toymakers primarily focus on marketing and selling action figures, accessories, dolls, youth electronics and arts and crafts, other industry players develop and market content and services on video game consoles, personal computers and mobile. Some of the industry participants offer video game platforms, playing cards, Karuta and other products along with handheld and home console hardware systems and related software. A few companies also develop and operate retail and online military simulation games and provide multiplayer and single-player games.

3 Trends Shaping the Future of Zacks Toys - Games - Hobbies Industry

Robust Demand for Toys: Although the coronavirus pandemic hurt most industries, toymakers have gained from the same. The toy-buying spree continues across the country. Online sales of board games and building sets have been on the rise. Per the NPD Group, U.S. toys sales increased 16% and 13% in 2020 and 2021, respectively. In 2021, unit sales and average selling price (ASP) rose 8% and 4%, respectively. According to the NPD Group, the three-year compound annual growth rate for the period between 2018 and 2021 was 8%, primarily driven by ASP growth of 8%. Most toy companies are focusing on bolstering their online business. The industry is anticipated to perform robustly in 2022. Per the NPD Group, the U.S. toys industry increased 2% in the first half of 2022 to $11.4 billion.

STEM Toys Gaining Popularity: Amid declining sales of traditional toys, the robust demand for STEM toys has come as a breather. The Asia Pacific region has emerged as a major growth driver of STEM toys. Countries like India, Malaysia, Singapore and Thailand are witnessing rising demand for STEM toys. Parents are focusing more on educational toys to teach their children during the pandemic. Per a Technavio report, educational toy sales are likely to grow to $28.4 billion during 2021-2025, witnessing a CAGR of more than 14%. The APAC region is likely to contribute growth of 36%. The industry players have been capitalizing on new distribution methods, development of digital-play components, exploration of ventures with other industries, and focusing on international expansion to drive growth. The industry has enormous growth potential in China and Brazil as both countries have a massive population of kids aged zero to 14 years.

High Costs Remain Concerns: Cost inflation had a negative impact on the industry due to a rise in raw materials prices. Temporary store closures in some parts of the world, product shortages, lower retail inventories and supply chain disruption have been hurting the industry. Higher employee-related expenses are also hurting the industry. The companies have been resorting to product launches and shifting toward more technology-driven toys to boost sales, which might drive profits in the long haul. However, costs related to the initiatives may prove detrimental to the industry in the near term. Maintaining liquidity has become an arduous task for a number of industry participants in the current scenario.

Zacks Industry Rank Indicates Bright Prospects

The Zacks Toys – Games – Hobbies industry is grouped within the broader Zacks Consumer Discretionary Sector.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates encouraging near-term prospects.

The Zacks Toys – Games – Hobbies industry currently carries a Zacks Industry Rank #92, which places it in the top 37% of 251 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1. Since Mar 31, 2022, the industry’s earnings estimates for the current year have moved north by 7.9%.

Before we present a few stocks that investors can take a look at, let’s analyze the industry’s recent stock-market performance and valuation picture.

Industry Outperforms the S&P 500 & Sector

The Zacks Toys – Games – Hobbies industry has outperformed the S&P 500 Index and its sector in the past year. The industry has decreased 9.4% over this period compared with the S&P 500 and the sector's decline of 14.3% and 41.4%, respectively.

One Year Price Performance

Industry's Current Valuation

Comparing the industry with the S&P 500 Index on the basis of forward 12-month price-to-earnings, which is a commonly used multiple for valuing the industry, we see that the industry is trading at 21.29X, higher than the S&P 500’s 16.85X and the sector’s 18.07X.

Over the last five years, the industry has traded as high as 31.97X and as low as 19.37X, with the median being 26.37X, as the chart shows.

3 Zacks Toys Stocks to Keep an Eye On

JAKKS Pacific: Headquartered in Santa Monica, CA, JAKKS Pacific is a multi-brand company that designs and markets a broad range of toys and consumer products. The company has been benefiting from strategic acquisitions, a solid international footprint, and a focus on innovation and collaborations with popular brands and movie franchises. Moreover, the company realizes the importance of online retailing and has shifted its focus to boosting online sales. It also continues to modify its sales and logistics capabilities to support the same.

Shares of this Zacks Rank #1 (Strong Buy) company have appreciated 86% in the past year. Its earnings for 2022 are anticipated to increase 88%. In the past 30 days, the earnings estimate for 2022 has been revised upward by 41.6%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Price & Consensus: JAKK

Mattel: Headquartered in El Segundo, CA, Mattel is the world’s largest manufacturer of toys. The robust Barbie brand and Hot Wheels sales are driving its performance. Given a strong product lineup, which includes core brands, licensed brands and lucrative product associations, the company remains well-poised for growth. The Barbie brand continues to instill investor confidence with solid performance. In the second quarter, the Barbie brand’s worldwide gross billings witnessed an improvement of 3% on a reported basis and 7% at cc. For 2022, the company anticipates net sales to grow in the range of 8-10% at cc. The adjusted gross margin for 2022 is expected in the range of 47-48%. Adjusted EBITDA for 2022 is expected to be $1,100-$1,125 million, suggesting an increase from $1,007 million reported in 2021.

Shares of this Zacks Rank #3 (Hold) company have gained 11.1% in the past year. Its 2022 earnings are anticipated to increase 13.9%. In the past 90 days, the earnings estimates for 2022 have been revised upward by 0.7%.

Price & Consensus: MAT

Hasbro: Headquartered in Pawtucket, RI, Hasbro is engaged in the design, manufacture and marketing of games and toys. Hasbro has been witnessing strong gaming demand amid the coronavirus crisis. The company has a top-notch gaming portfolio and is refining gaming experiences across a multitude of platforms like face-to-face gaming, tabletop gaming and digital gaming experiences on mobile. For fiscal 2022, the company anticipates revenues to grow at a low-single-digit rate. Operating profit is expected to grow at a mid-single-digit rate. For fiscal 2022, the company expects to achieve an adjusted operating profit margin of 16%.

Shares of this Zacks Rank #3 company have declined 19.2% in the past year. The company’s sales for 2022 are anticipated to increase 0.7%. In the past 30 days, earnings estimates for 2022 have been revised upward by 0.2%.

Price & Consensus: HAS

In-Depth Zacks Research for the Tickers Above

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