Mattel, Inc. (NASDAQ:MAT) shares are down more than -49.18% this year and recently decreased -8.91% or -$1.37 to settle at $14.00. Hasbro, Inc. (NASDAQ:HAS), on the other hand, is up 24.87% year to date as of 10/27/2017. It currently trades at $97.14 and has returned -1.07% during the past week.
Mattel, Inc. (NASDAQ:MAT) and Hasbro, Inc. (NASDAQ:HAS) are the two most active stocks in the Toys & Games industry based on today’s trading volumes. To determine if one is a better investment than the other, we will compare the two companies’ growth, profitability, risk, return, and valuation characteristics, as well as their analyst ratings and sentiment signals.
The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Analysts expect MAT to grow earnings at a 6.53% annual rate over the next 5 years. Comparatively, HAS is expected to grow at a 9.43% annual rate. All else equal, HAS’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. , compared to an EBITDA margin of 19.17% for Hasbro, Inc. (HAS). MAT’s ROI is 9.00% while HAS has a ROI of 17.50%. The interpretation is that HAS’s business generates a higher return on investment than MAT’s.
Cash is king when it comes to investing. MAT’s free cash flow (“FCF”) per share for the trailing twelve months was -0.96. Comparatively, HAS’s free cash flow per share was -2.14. On a percent-of-sales basis, MAT’s free cash flow was -6.05% while HAS converted -5.33% of its revenues into cash flow. This means that, for a given level of sales, HAS is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. MAT has a current ratio of 1.30 compared to 2.10 for HAS. This means that HAS can more easily cover its most immediate liabilities over the next twelve months. MAT’s debt-to-equity ratio is 1.99 versus a D/E of 0.95 for HAS. MAT is therefore the more solvent of the two companies, and has lower financial risk.
MAT trades at a forward P/E of 16.87, a P/B of 3.34, and a P/S of 1.03, compared to a forward P/E of 18.52, a P/B of 6.64, and a P/S of 2.26 for HAS. MAT is the cheaper of the two stocks on an earnings, book value and sales basis. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.
Analyst Price Targets and Opinions
When investing it’s crucial to distinguish between price and value. As Warren Buffet said, “price is what you pay, value is what you get”. MAT is currently priced at a -24.32% to its one-year price target of 18.50. Comparatively, HAS is -8.64% relative to its price target of 106.33. This suggests that MAT is the better investment over the next year.
The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 2.50 for MAT and 2.20 for HAS, which implies that analysts are more bullish on the outlook for MAT.
Risk and Volatility
Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. MAT has a beta of 0.89 and HAS’s beta is 0.88. HAS’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. MAT has a short ratio of 8.33 compared to a short interest of 3.98 for HAS. This implies that the market is currently less bearish on the outlook for HAS.
Hasbro, Inc. (NASDAQ:HAS) beats Mattel, Inc. (NASDAQ:MAT) on a total of 9 of the 14 factors compared between the two stocks. HAS has higher cash flow per share, is more profitable, generates a higher return on investment, has a higher cash conversion rate, higher liquidity and has lower financial risk. In terms of valuation, MAT is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, HAS has better sentiment signals based on short interest.