Leading toy makers Mattel(NASDAQ: MAT) and Hasbro just reported their third-quarter financial results. Mattel benefited enormously from the release of Barbie in July, as sales jumped 9% year over year (7% excluding currency changes).
However, the market was spooked by Hasbro's falling revenue. Broader demand across the toy industry remains weak, and this weighed on both stocks, with Mattel shares down 8% as of 12:33 p.m. ET on Thursday. Should investors be concerned about the toy maker heading into 2024?
Why investors are not buying Mattel's strong third quarter
Household budgets appear to be tightening as rising interest rates make it more expensive to buy things. Wall Street is clearly concerned that Mattel benefited from a one-time bump in Barbie sales coming off a successful movie launch in the quarter that won't repeat going forward.
Indeed, it is a red flag that despite strong sales in the Barbie franchise, Mattel didn't raise its full-year revenue outlook. Instead, it held its guidance consistent with previous expectations for fiscal 2023 sales to be comparable with last year's $5.4 billion.
However, it's also a positive sign that Mattel experienced a strong increase in gross billings, with vehicle toys up 18% year over year, driven by Hot Wheels.
Is the stock a buy?
The toy industry is not a high-growth business, but Mattel is profitable and the shares offer decent value at a forward price-to-earnings ratio of 15.4. Mattel enters the holiday quarter with more shelf space than a year ago and a larger representation across major holiday catalogs. This is no doubt due to the popularity of Barbie, so it's possible that the success of that movie could carry momentum into next year.
In 2024, Mattel has the animated series Hot Wheels, Let's Race releasing on Netflix. All in all, the market might be making a mistake by lumping Mattel in with Hasbro.
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