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Mattel Inc(MAT-Q)

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Is Mattel a Buy Now?

Motley Fool - Sat Sep 2, 2023

Mattel(NASDAQ: MAT) has been a topic of investing conversations a little more than usual lately because of the success of its blockbuster film, "Barbie." The movie, whose marketing was unavoidable if you had access to the internet or billboards in your city, has managed to gross over $1.34 billion globally.

Despite all the attention Mattel is getting and the nostalgia "Barbie" has ignited for many of its brands, it's important to approach investing in the company with an unbiased eye. Let's take a look and see if Mattel is worth buying right now.

There's a lot to be said about iconic brands

With toy companies like Mattel, their brands are the greatest tools they have on their side. Mattel has a list of iconic brands, including Barbie, Hot Wheels, Fisher-Price, UNO, American Girl, and plenty more.

Specific toys can easily be replicated for the most part, but a brand makes a toy what it is. Someone can make a doll, but they can't make a Barbie; they can make toy cars, but they can't make Hot Wheels; they can make card games, but they can't make another UNO.

The value of Mattel's brands is easily worth billions. Barbie alone has an approximate brand value of around $700 million (almost double from 2021). With that type of brand equity, Mattel should be able to capitalize on its portfolio in multiple industries for years to come.

Mattel's financials are a cause for concern

Mattel's Q2 financials weren't quite encouraging from the outside looking in, with its revenue down 12% year over year, net income off by 59%, and diluted earnings per share (EPS) lower by 55%. However, it was a pleasant surprise as it beat revenue and EPS estimates by over 8.8% and 385%, respectively.

While Mattel is projected to receive nice nine-figure boosts to its top and bottom lines from Barbie's success, it's important not to let that mask some financial issues the company currently has. To begin with, it's had negative revenue growth for most of the past decade.

MAT Revenue (Annual YoY Growth) Chart

Data by YCharts

Sales will undoubtedly pick up for Mattel in the back half of 2023, with holidays and inventory issues working themselves out, but it's still projected to be anywhere from flat to a 1% increase from 2022.

You could argue that the success of Barbie will bring along new revenue opportunities as the company embraces the cinema lane. It's been reported that the company is developing over 14 movies based on its toys. It could be a turning point for Mattel if it works out, or another financial setback if it fails to replicate even a glimpse of Barbie's success. Only time will tell.

The company already has a lot of long-term debt, which is never ideal, but especially so during times with interest rates like now. A couple of changes in percentage points add up when you have over $2.3 billion in debt.

It's not as attractive without the dividend

Dividends give investors a bit of a safety net, because you'll be earning money regardless of the stock's price movements. Unfortunately, Mattel had to suspend its dividend after Toys'R'Us, its largest retailer, went bankrupt.

No dividend is a stark difference from Mattel's main competitor, Hasbro, which has a $0.70 quarterly dividend, with a trailing 12-month dividend yield of close to 4%. That doesn't make Hasbro the better investment by any means, but it's a good selling point for investors.

With stagnant sales and no dividend to encourage patience while the company weathers the current storm, Mattel seems like a hold right now. Long-term investors looking to begin a stake should consider dollar-cost averaging their way in.

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Stefon Walters has no position in any of the stocks mentioned. The Motley Fool recommends Hasbro. The Motley Fool has a disclosure policy.

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