Spin Master Corp. (TSX:TOY) stock made an all-time high after it reported its strongest quarter yet. The company creates, designs, manufactures, licenses, and markets a diversified portfolio of toys, games, products, and entertainment properties.
Compared to the second quarter of 2016, Spin Master saw revenue growth of 54% and adjusted earnings before interest, taxes, depreciation, and amortization growth of 72% in the second quarter of 2017.
The stellar results were attributable to multiple factors, including improved operating leverage and the success of its Remote Control and Interactive Characters segment, which increased gross product sales by nearly 311% for the quarter compared to the year-to-date increase of 210%.
An improved operating leverage allows for higher profits when there’s revenue growth, which we are seeing at Spin Master. The leading global children’s entertainment company’s Remote Control and Interactive Characters segment growth was primarily due to sales of Hatchimals, Hatchimals CollEGGtibles, and Zoomer Zupps, which more than covered for the sales decline of Air Hogs.
Spin Master’s share price is also lifted by its future growth potential.
Recent news that will boost growth
Spin Master grows in a number of ways, including increasing its sales in higher-growth developing and emerging markets. In the second quarter, through Alibaba, the company started selling its toys to China, which has a toy market of US$11.5 billion.
In late July, Spin Master announced that it will have a decades-long brand partnership with Feld Entertainment starting in 2019. Spin Master will grow Monster Jam’s toy line and reinforce the Monster Jam franchise, which already includes well-known intellectual property, such as Grave Digger, Max-D, and Monster Mutt.
Furthermore, Spin Master makes strategic acquisitions. In late July, it acquired certain assets of Aerobie that will add diversity to its outdoor segment, which contributed to less than 12% of its gross product sales in the second quarter.
Spin Master raised guidance
Spin Master raised its gross product sales growth guidance for this year from high single digits to the mid-20% range, reflecting its strong second quarter. These estimations would be higher if the sales of Swimways were included.
Swimways’s sales weren’t included because it was acquired by Spin Master in August 2016 and will distort the growth estimates because it hasn’t made a full-year contribution yet.
Should you buy Spin Master today?
Spin Master has been an excellent growth stock. In the short term, there may be some profit-taking. So, interested investors should see if it’ll experience some pullback in the near term to get in at a better price.
Let’s not forget that in the face of bad press, Spin Master can fall hard just like it did in December 2016 when there were some complaints about Hatchimals malfunctioning. At the time, I believed the issue was temporary and that the shares would be higher a year from then. Now, a little over seven months since, shares have appreciated ~43%.
Investors looking for value should consider an investment in Spin Master when there’s bad news surrounding the company and buy in if they believe it to be temporary.
That said, one can’t argue about averaging in to a position for long-term growth if you have an investment horizon of at least three to five years.
