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3 Toys & Games Industry Stocks to Watch in a Gloomy Industry

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The Zacks Toys - Games – Hobbies industry is reeling under cost inflation. A decline in retail sales of toys is a concern for the industry. The robust performance of smart toys, STEM toys (Science, Technology, Engineering and Math), sports toys and fashion dolls and accessories bodes well. 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 Electronic Arts Inc. (EA - 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 playersdevelop and market content and services on video game consoles, personal computers and mobile. Some industry participants offervideo game platforms, playing cards, Karuta, and other products,along withhandheld and home console hardware systems and related software. A few companies also develop and operate retail and online military simulation games and providemultiplayer and single-player games.

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

High Costs Remain Concerns: Cost inflation had a negative impact on the industry due to a rise in raw materials prices. 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.  On the other hand, dismal retail sales are also hurting the industry.

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 emerged as a significant growth driver for STEM toys. Countries like India, Malaysia, Singapore and Thailand are witnessing rising demand for STEM toys. Parents are more focused on educational toys to teach their children. The industry players have been capitalizing on new distribution methods, developing digital-play components, exploring ventures with other industries and focusing on international expansion to drive growth. The industry has enormous growth potential in China and Brazil as countries have a massive population of kids aged zero to 14 years.

Focus on Emerging Markets: Industry participants are focused on expanding their presence in emerging markets in Eastern Europe, Asia and Latin and South America. Emerging markets offer greater opportunities for revenue growth than developed markets. Although toy sales declined in 2022, it is likely to witness growth in 2023, courtesy of robust demand for gaming.

Zacks Industry Rank Indicates Dismal Prospects

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

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

The Zacks Toys – Games – Hobbies industry currently carries a Zacks Industry Rank #165, which places it in the bottom 34% 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.

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 the S&P 500

The Zacks Toys – Games – Hobbies industry has underperformed the S&P 500 Index. The industry has increased 11.7% over this period compared with the S&P 500’s rise of 13.3%. In the same time frame, the sector has gained 6.8%.

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 22.54X, higher than the S&P 500’s 19.09X but lower than the sector’s 16.64X.

Over the last five years, the industry has traded as high as 33.79X and as low as 17.24X, with the median being 25.58X, as the chart shows.


3 Zacks Toys Stocks to Keep an Eye On

Electronic Arts: Headquartered in Redwood City, CA, the company is benefiting from strength in new releases, continued live services growth and healthy player engagement. Live services are benefiting strength in franchises, including Apex Legends, Madden NFL, FIFA and The Sims. EA SPORTS FC and EA SPORTS NHL 24 present a significant growth opportunity.

Shares of this Zacks Rank #3 (Hold) company have increased 4.6% in the past year. Its earnings for fiscal 2024 are anticipated to increase 28.2%. In the past 60 days, the earnings estimate for 2023 has been revised upward by 2.6%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Price & Consensus: EA

Mattel: The company is benefiting from product portfolio expansion strategies across its key brands, the Optimizing for Growth program and solid demand for Hot Wheels. Also, initiatives to capture the full value of its IPs and transform itself into a high-performing toy company bode well.

Shares of this Zacks Rank #3 company have gained 3.8% in the past year. The company’s sales in 2023 are likely to witness an increase of 1.2%. In the past seven days, the earnings estimate for 2023 has been revised upward by 3.3%.

Price & Consensus: MAT

JAKKS Pacific: Based in Malibu, CA, JAKKS Pacific, the company is benefiting from its focus on innovation and collaborations with popular brands and movie franchisees bode well. The company realized the importance of online retailing and shifted its focus to boosting online sales.

Shares of this Zacks Rank #3 company have surged 65.8% in the past year. In 2024, the company’s sales are likely to witness growth of 4.5% year over year.

Price & Consensus: JAKK

See More Zacks Research for These Tickers

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

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

Electronic Arts Inc. (EA) - free report >>

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