Why Spin Master Stock Jumped 11% on Tuesday

Spin Master (TSX:TOY) stock saw shares climb 11% after strong earnings that led to bumps from analysts for future revenue.

Amy Legate-Wolfe

Amy became interested in investing in 2018 after having her first daughter. After receiving a masters degree in journalism from Western University, she became frustrated that the finance industry remained a confusing place for Canadians like her: new parents, millennials, and other young people who needed to understand their finances. Now, Amy focuses on tech companies and renewable energy for growth opportunities, coupling that with long-term investing strategies and equities. Before joining Motley Fool Canada, she wrote for major news organizations including HuffPost, CTVNews.ca, and CBC. Amy’s work can be found regularly on the Financial Post and MoneyWise Canada. When she’s not researching investing strategies, Amy’s time is pretty much monopolized by her two wild daughters, but in what little spare time she has she loves to do yoga, go on walks with her dog Finley, and travel. Follow Amy on LinkedIn.

Published March 1, 2022 1:30 pm EST

| More on: TOY

Shares of Spin Master (TSX:TOY) shares jumped 11 on Tuesday after the company reported strong earnings. Spin Master stock saw revenue increase 26.5% year over year, with net income reaching $26.5 million, or $0.25 earnings per share.

What happened?

Spin Master stock saw more strong growth in the most recent quarter, with long-term growth for 2022 identified by management. Revenue came in at $620.5 million for the quarter, up 26.5% year over year. Gross profit came in at $323.3 million, a gross margin of 52.1%. This improvement management stated came from lower closeout sales, digital games and licensing, merchandising revenue and more products.

Earnings for Spin Master stock could have been higher if not for inflation on products and ocean freight. The company saw some improvement from price increases, with gross product sales climbing 20%, and total revenue 30%. This allowed the company to exceed $2 billion in revenue for the first time.

So what?

Finishing out the year on such a strong note was a great sign to analysts. Several weighed in on Spin Master stock, seeing strength in the company that was much higher than expected. The building up of inventory seemed to help the stock, especially as supply-chain demands weighed heavily. The company came out as one of the strongest retailers. This was great timing as the company’s Paw Patrol: The Movie came out. Movie-related revenue contributed $26 million in the third quarter as well.

Analysts revised their outlook, believing the next quarter could be stronger than usual as well. The company continues to have strong free cash flow that continues to grow, priming it for the ability to make further growth opportunities.

Now what?

One of those growth opportunities came out on Monday, with Spin Master stock announcing a four-year renewal of its DC Super Heroes licensing agreement. The company will now renew the licence of 2019-2022 to 2023-2026.

Again, this is more great timing with the new release of The Batman coming out this week. Analysts believe the stock will continue to see benefit from this strong product mix, including from stellar digital sales.

Shares are up 7% from close on Monday. Analysts give Spin Master stock a target price of $57. This represents a potential upside of 19% as of writing.