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3 Toys & Games Stocks to Watch in a Prospering Industry

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The Zacks Toys - Games – Hobbies industry has been benefiting from robust demand for sports toys, fashion dolls and accessories, building sets and educational toys. 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 Mattel, Inc. (MAT - Free Report) , Hasbro, Inc. (HAS - Free Report) and JAKKS Pacific, Inc. (JAKK - Free Report) are likely to gain from the aforementioned trend.

Industry Description

The Zacks Toys - Games – Hobbies industry comprises companies that design, manufacture and sells various games and toys. While traditional toy makers primarily focus on marketing and selling action figures, accessories, dolls, youth electronics, and arts and crafts, some of the industry participants also develop and market content and services on video game consoles, personal computers and mobile.

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

Pandemic Driving Toys Demand: Although coronavirus-induced shutdowns have hurt most industries, toy makers 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 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 NPD  Group, sports toys, fashion dolls and accessories, building sets, games and summer seasonal toys sales improved 31%, 56%, 26%, 29% and 24%, respectively. Most of the toy companies are focusing on bolstering online business. The industry is anticipated to perform robustly in 2021 and 2022. Notably, Hasbro has been witnessing strong gaming demand amid this crisis scenario. Owing to leverage in global retail network coupled with investments in new channels, the company witnessed solid growth in its e-com revenues in 2020. Notably, it generated more than $1 billion in e-com revenues, increasing 43% year over year. It also contributed nearly 30% to global revenues in 2020. Going forward, the company continues to focus on retailers to expand online offerings.

Educational Toys Gaining Popularity: Amid declining sales of traditional toys, robust demand for educational toys has been quite a relief. Parents are focusing more on education toys to teach their children amid the pandemic. Per a Technavio report, educational toys are likely to reach $24.3 billion during 2020-2024, witnessing a CAGR of nearly 15%. Moreover, 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 the countries have a massive population of kids aged 0 to 14 years.

Shipments Disruption & High Costs Remain Concerns: The coronavirus pandemic continues to hurt shipments, brick-and-mortar sales, and delivery of content in order to meet demand. Further, temporary store closures, product shortages, lower retail inventories and supply chain disruption might hurt the industry. Moreover, the industry participants’ initiatives including product launches and shift toward more technology-driven toys for boosting sales would aid profits in the long haul. However, costs related to those initiatives might prove detrimental to the company 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 #112, which places it in the top 44% of 254 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1. Since Dec 31, 2020, the industry’s earnings estimates for the current year have moved north by 4.6%.

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 over the past year. The industry has surged 36.4% over this period compared with the sector’s increase of 53.7%. Meanwhile, the S&P 500 Index rallied 51.7% in the same time frame.

                       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 28.01X, higher than the S&P 500’s 23.1X and the sector’s 33.26X.

Over the last five years, the industry has traded as high as 31.5X and as low as 19.51X, with the median being at 26.43X, as the chart shows.

3 Zacks Toys Pick to Keep an Eye On

Mattel: Headquartered in El Segundo, CA, Mattel is the world’s largest manufacturer of toys. 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. Owing to its popularity among young boys and girls, its premier brand like Hot Wheels has been the category leader in multiple product segments for several years. Continued strategic investments in the brand are likely to keep broadening the depth of fun kids can have with Hot Wheels.

Shares of this Zacks Rank #2 (Buy) company have gained 58.4% in the past six months compared with the industry’s growth of 15.4%. Moreover, the company’s 2021 earnings are anticipated to increase 33.7%. In the past 60 days, earnings estimate for 2021 has been revised upward by 5.4%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

                                     Price & Consensus: MAT

Hasbro: Headquartered in Pawtucket, RI, Hasbro is engaged in the design, manufacture and marketing of games and toys. The company continues to focus on adapting plans to deliver robust line-up of entertainment and innovation from E1 and its partners in 2021. Notably, on the content side, E1 production is gradually recovering through a new animated series on Netflix and Alien TV. The team also continues to develop and produce new content for Peppa Pig, PJ Mask and the My Little Pony 2021 feature film. Hasbro has been witnessing strong gaming demand during the coronavirus pandemic. The company has a supreme gaming portfolio, and it is refining gaming experiences across a multitude of platforms like face-to-face gaming, off-the-board gaming and digital gaming experiences in mobile.

Shares of this Zacks Rank #3 (Hold) company have surged 30.4% in the past year compared with the industry’s growth of 36.4%. Moreover, the company’s earnings for 2021 are anticipated to increase 15%. In the past 60 days, earnings estimate for 2021 has been revised upward by 0.9%.

                                 Price & Consensus: HAS

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’s strategic acquisitions, solid international footprint, focus on innovation and collaborations with popular brands and movie franchisees are likely to drive the top line. JAKKS Pacific is committed toward diversifying its presence outside the United States. During the third quarter 2020, the company acquired indoor trampolines and non-licensed trampolines at retail. It also took over appropriate licenses from the top licensing companies to build trampoline base, thereby opening avenues of business in 2021.

Shares of this Zacks Rank #3 company have appreciated 38.4% in the past six months. Moreover, the company’s earnings for 2021 are anticipated to increase 51%. In the past 90 days, loss estimate for 2021 has narrowed to $2.90 from a loss of $3.87.

                              Price & Consensus: JAKK

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In-Depth Zacks Research for the Tickers Above

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Hasbro, Inc. (HAS) - free report >>

Mattel, Inc. (MAT) - free report >>

JAKKS Pacific, Inc. (JAKK) - free report >>