Buy This, Not That: A Tale of Two Toymakers

Shah Gilani|December 18, 2024

With holiday shopping coming down to the wire, I’m tackling the ultimate toy story showdown…

Hasbro vs. Mattel.

One’s a beloved brand paying a juicy 4.6% dividend that might be too good to be true, while the other’s playing a quieter but potentially more profitable game.

I’ll break down why one of these toy titans is stuffing investors’ stockings with coal, while the other could be the gift that keeps on giving.

Sometimes the brightest-wrapped package isn’t the best present under the tree.

Join me for this week’s “Buy This, Not That” to discover which toy maker is worth putting on your holiday shopping list.

Click on the thumbnail to dive in.

TRANSCRIPT

Hey, everybody. Shah Gilani here with your weekly BTNT, as in “Buy This, Not That.”

It’s the holidays. We know what’s going to be happening. Shopping has already started. It probably started before Thanksgiving, but it’s about the kids.

It’s about toys for the kids. Today, I’m going to tackle the two biggest toy companies in America. Now, I know a lot of you are going to wonder, “Hey, how come Shah didn’t recommend Lego?” Because it’s private.

The numbers for Lego – I’ve seen indications of what they are. It’s controlled by a management company, a very smart management company for a very wealthy family, and the numbers are staggering. It’s staggeringly profitable, but we can’t buy it. What we can look at, however, are the two American giants: Hasbro and Mattel.

I’m going to start with Hasbro. I’m going to pull up a chart for this one because the chart tells a story sometimes. Most of the time, yes. Not all the time, but when it tells a story, sometimes it’s compelling. Here is Hasbro, symbol HAS. This is a one-year chart. It’s absolutely collapsed.

Going into the holidays, you expect this to be strong in sales, but it tried to rally up to 50, and this is a pretty ugly chart. It’s broken down through the 200-day moving average. Even when it got oversold, there was no bounce – there was just more selling. Then we had a little bit of a rise here. I don’t think there’s a spoiler alert here: Hasbro is a “not.”

Don’t buy Hasbro. Mattel is a much better company. It’s better run right now. The numbers are much better, and even the graph is better.

Knocking Hasbro, some of the reasons I don’t like it: First, it has a pretty paltry profit margin. This is an $8.5 billion market cap company. Revenues are $4.32 billion. The profit margin is negative 14.83%.

I don’t care that they have lots of great toys, whether it’s G.I. Joe, Transformers, Monopoly, Play-Doh, etc. They have lots of franchise arrangements for big movies, including Transformers, Star Wars, and Marvel Entertainment. Yes, they have all these great licensing deals, but it’s not working out so well. Maybe because there hasn’t been that big of a hit lately that translated into toys.

They’ve got Dungeons & Dragons that they’re making into games, and that’s not even working out for them. The negative profit margin – negative 14% – that pretty much tells you everything. I want a company that’s been around long enough and has enough relationships to be hitting it out of the park.

The thing that bothers me the most is the dividend. Some of you will look at this and say, “Hey, Shah, this thing pays a pretty nice dividend.” Yes, the forward dividend yield on Hasbro stock is 4.6%. That sounds pretty good, except when you look at where the dividend is paid from. It’s paid out of net income available to common shareholders, which is negative $641 million. There’s nothing in that bucket to pay that dividend. If you look at that dividend and think, “Oh, at least it can carry me for a while” – no, it can’t because it’s unsustainable.

Mattel, on the other hand – the graph isn’t compelling, but as a company, I like it a heck of a lot better. Yes, the graph looks better. Sideways action could maybe break out of that consolidation. Nice long sideways action this year – if it breaks out, would be pretty nice.

Here are a couple things I like about Mattel. The profit margin is 10.25%. It has great revenues at $5.35 billion. It’s got a much better balance sheet than Hasbro. Comparing again: The net income available to common shareholders at Hasbro was negative $641 million. At Mattel, it’s positive $548 million. They don’t pay a dividend, but the company’s in much better shape, and it’s just a better company all around.

Chart-wise, I kind of like it. I think we can see this consolidation turn into a breakout. So between Hasbro and Mattel, go with Mattel. It’s the buy, certainly not Hasbro.

That’s it. Happy holidays, everybody. I don’t think I’ll catch you next week – I think I’m going to be celebrating. So cheers, everybody. I’ll catch you the week after. Be safe out there. Happy holidays.