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4 Stocks Worth a Look From a Prospering Toys & Games Industry
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The Zacks Toys - Games – Hobbies industry is benefiting from robust demand for smart toys, STEM toys (Science, Technology, Engineering and Math), sports toys, fashion dolls and accessories. The industry participants have been undertaking efforts on the digital front and focusing on the better execution of marketing and promotional initiatives to drive growth. The industry players, including Electronic Arts Inc. (EA - Free Report) , Mattel, Inc. (MAT - Free Report) , Take-Two Interactive Software, Inc. (TTWO - Free Report) and JAKKS Pacific, Inc. (JAKK - Free Report) are likely to gain from the afore-mentioned 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 also 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
Pandemic Driving Demand for Toys: Although coronavirus-induced shutdowns have hurt most industries, toymakers have been gaining from the same. With kids stuck at home, parents have been buying toys in bulk to keep the children occupied and away from the TV while they work. While the toy-buying spree continues across the country, online sales of board games and building sets have also been on the rise. Per the NPD Group, U.S. toys sales increased 16% in 2020. According to The NPD Group, sports toys, fashion dolls and accessories, building sets, games and summer seasonal toys sales increased 31%, 56%, 26%, 29% and 24%, respectively. Per The NPD Group, U.S. toy industry dollar sales rose 17% or $2.3 billion between January and September 2021. During the same timeframe, both unit sales and average selling price (ASP) rose during the period, up 12% and 4%, respectively. In third-quarter 2021, dollar sales rose 11%. Most of the toy companies are focused on bolstering online business. The industry is anticipated to perform robustly in 2022.
STEM Toys Gaining Popularity: Amid declining sales of traditional toys, robust demand for STEM toys has been quite a relief. Asia Pacific region has emerged as a major growth driver for 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 toys are likely to grow $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.
Shipments Disruption & High Costs Remain Concerns: The coronavirus pandemic continues to hurt shipments, brick-and-mortar sales and delivery of content. Temporary store closures, product shortages, lower retail inventories and supply chain disruption might hurt the industry. The companies’ are resorting to product launches and shifting toward more technology-driven toys to boost sales, which is likely to drive profits in the long haul. However, costs related to the initiatives might prove detrimental to the industry in the near term.
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 #107, which places it in the top 42% of 253 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 Jun 30, 2021, the industry’s earnings estimates for the current year have moved north by 4.1%.
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 Underperforms Sector & S&P 500
The Zacks Toys – Games – Hobbies industry has underperformed the broader Zacks Consumer Discretionary sector and the S&P 500 Index in the past year. The industry has declined 16.1% over this period compared with the S&P 500’s rally of 25%. Over the same time period, the sector has declined 13.3%.
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 21.08X, higher than the S&P 500’s 22.21X but lower than the sector’s 26.09X.
Over the last five years, the industry has traded as high as 31.37X and as low as 18.91X, with the median being at 26.38X, as the chart shows.
4 Zacks Toys Pick to Keep an Eye On
Electronic Arts: Headquartered in Redwood City, CA, Electronic Arts is a leading developer, marketer, publisher and distributor of interactive games (video game software and content). EA has been the primary beneficiary of the ongoing shift from physical to digital versions of video games. Notably, the contribution of the digital business to EA’s revenues increased from 57% in fiscal 2017 to 67% in fiscal 2018 and 75% in fiscal 2019. The company expects the digital business to continue to grow primarily on the back of live services and a strong mobile business.
Shares of this Zacks Rank #2 (Buy) company have gained 2.6% in the past month against the industry’s decline of 4%. Its 2022 earnings are anticipated to increase 23.3%. In the past 30 days, earnings estimate for 2022 has been revised upward by 0.7%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price & Consensus: EA
Mattel: Headquartered in El Segundo, CA, Mattel is the world’s largest manufacturer of toys. A robust Barbie brand and Hot Wheels sales are driving its performance. Given a strong product line-up, which includes core brands, licensed brands and lucrative product associations, the company remains well-poised for growth. During the third quarter, North America segment gross billings increased 12% (as reported) and 11% (at constant currency) year over year.
Shares of this Zacks Rank #3 (Hold) company have gained 13.8% in the past six months against the industry’s decline of 13.4%. Its 2022 earnings are anticipated to increase 29.1%. In the past 90 days, earnings estimate for 2022 has been revised upward by 3.6%.
Price & Consensus: MAT
Take-Two Interactive Software: Headquartered in NY, the company develops, publishes and markets interactive entertainment solutions for consumers worldwide. The growing traction in NBA franchise bodes well for the company. Take-Two expects NBA 2K net bookings to continue the momentum owing to strong growth in recurrent consumer spending, which increased 29% year over year in fiscal 2020.
The Zacks Rank #3 (Hold) company’s earnings estimate for 2022 has been revised upward by 2.8%.
Price & Consensus: TTWO
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.
Shares of this Zacks Rank #3 company have appreciated 92.4% in the past year. Its earnings for 2022 are anticipated to increase 268.9%. In the past 90 days, earnings estimate for 2022 has been revised upward by 3.7%.
Price & Consensus: JAKK
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4 Stocks Worth a Look From a Prospering Toys & Games Industry
The Zacks Toys - Games – Hobbies industry is benefiting from robust demand for smart toys, STEM toys (Science, Technology, Engineering and Math), sports toys, fashion dolls and accessories. The industry participants have been undertaking efforts on the digital front and focusing on the better execution of marketing and promotional initiatives to drive growth. The industry players, including Electronic Arts Inc. (EA - Free Report) , Mattel, Inc. (MAT - Free Report) , Take-Two Interactive Software, Inc. (TTWO - Free Report) and JAKKS Pacific, Inc. (JAKK - Free Report) are likely to gain from the afore-mentioned 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 also 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
Pandemic Driving Demand for Toys: Although coronavirus-induced shutdowns have hurt most industries, toymakers have been gaining from the same. With kids stuck at home, parents have been buying toys in bulk to keep the children occupied and away from the TV while they work. While the toy-buying spree continues across the country, online sales of board games and building sets have also been on the rise. Per the NPD Group, U.S. toys sales increased 16% in 2020. According to The NPD Group, sports toys, fashion dolls and accessories, building sets, games and summer seasonal toys sales increased 31%, 56%, 26%, 29% and 24%, respectively. Per The NPD Group, U.S. toy industry dollar sales rose 17% or $2.3 billion between January and September 2021. During the same timeframe, both unit sales and average selling price (ASP) rose during the period, up 12% and 4%, respectively. In third-quarter 2021, dollar sales rose 11%. Most of the toy companies are focused on bolstering online business. The industry is anticipated to perform robustly in 2022.
STEM Toys Gaining Popularity: Amid declining sales of traditional toys, robust demand for STEM toys has been quite a relief. Asia Pacific region has emerged as a major growth driver for 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 toys are likely to grow $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.
Shipments Disruption & High Costs Remain Concerns: The coronavirus pandemic continues to hurt shipments, brick-and-mortar sales and delivery of content. Temporary store closures, product shortages, lower retail inventories and supply chain disruption might hurt the industry. The companies’ are resorting to product launches and shifting toward more technology-driven toys to boost sales, which is likely to drive profits in the long haul. However, costs related to the initiatives might prove detrimental to the industry in the near term.
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 #107, which places it in the top 42% of 253 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 Jun 30, 2021, the industry’s earnings estimates for the current year have moved north by 4.1%.
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 Underperforms Sector & S&P 500
The Zacks Toys – Games – Hobbies industry has underperformed the broader Zacks Consumer Discretionary sector and the S&P 500 Index in the past year. The industry has declined 16.1% over this period compared with the S&P 500’s rally of 25%. Over the same time period, the sector has declined 13.3%.
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 21.08X, higher than the S&P 500’s 22.21X but lower than the sector’s 26.09X.
Over the last five years, the industry has traded as high as 31.37X and as low as 18.91X, with the median being at 26.38X, as the chart shows.
4 Zacks Toys Pick to Keep an Eye On
Electronic Arts: Headquartered in Redwood City, CA, Electronic Arts is a leading developer, marketer, publisher and distributor of interactive games (video game software and content). EA has been the primary beneficiary of the ongoing shift from physical to digital versions of video games. Notably, the contribution of the digital business to EA’s revenues increased from 57% in fiscal 2017 to 67% in fiscal 2018 and 75% in fiscal 2019. The company expects the digital business to continue to grow primarily on the back of live services and a strong mobile business.
Shares of this Zacks Rank #2 (Buy) company have gained 2.6% in the past month against the industry’s decline of 4%. Its 2022 earnings are anticipated to increase 23.3%. In the past 30 days, earnings estimate for 2022 has been revised upward by 0.7%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price & Consensus: EA
Mattel: Headquartered in El Segundo, CA, Mattel is the world’s largest manufacturer of toys. A robust Barbie brand and Hot Wheels sales are driving its performance. Given a strong product line-up, which includes core brands, licensed brands and lucrative product associations, the company remains well-poised for growth. During the third quarter, North America segment gross billings increased 12% (as reported) and 11% (at constant currency) year over year.
Shares of this Zacks Rank #3 (Hold) company have gained 13.8% in the past six months against the industry’s decline of 13.4%. Its 2022 earnings are anticipated to increase 29.1%. In the past 90 days, earnings estimate for 2022 has been revised upward by 3.6%.
Price & Consensus: MAT
Take-Two Interactive Software: Headquartered in NY, the company develops, publishes and markets interactive entertainment solutions for consumers worldwide. The growing traction in NBA franchise bodes well for the company. Take-Two expects NBA 2K net bookings to continue the momentum owing to strong growth in recurrent consumer spending, which increased 29% year over year in fiscal 2020.
The Zacks Rank #3 (Hold) company’s earnings estimate for 2022 has been revised upward by 2.8%.
Price & Consensus: TTWO
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.
Shares of this Zacks Rank #3 company have appreciated 92.4% in the past year. Its earnings for 2022 are anticipated to increase 268.9%. In the past 90 days, earnings estimate for 2022 has been revised upward by 3.7%.
Price & Consensus: JAKK