Why Spin Master Corp. (TSE:TOY) Could Be Worth Watching
Spin Master Corp. (TSE:TOY), is not the largest company out there, but it saw a decent share price growth in the teens level on the TSX over the last few months. With many analysts covering the mid-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, could the stock still be trading at a relatively cheap price? Today I will analyse the most recent data on Spin Master’s outlook and valuation to see if the opportunity still exists.
Check out our latest analysis for Spin Master
What Is Spin Master Worth?
The share price seems sensible at the moment according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Spin Master’s ratio of 10.47x is trading slightly below its industry peers’ ratio of 10.49x, which means if you buy Spin Master today, you’d be paying a decent price for it. And if you believe Spin Master should be trading in this range, then there isn’t much room for the share price to grow beyond the levels of other industry peers over the long-term. So, is there another chance to buy low in the future? Given that Spin Master’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.
Can we expect growth from Spin Master?
Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. However, with a negative profit growth of -14% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Spin Master. This certainty tips the risk-return scale towards higher risk.
What This Means For You
Are you a shareholder? Currently, TOY appears to be trading around industry price multiples, but given the uncertainty from negative returns in the future, this could be the right time to de-risk your portfolio. Is your current exposure to the stock optimal for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on TOY, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping an eye on TOY for a while, now may not be the most advantageous time to buy, given it is trading around industry price multiples. This means there’s less benefit from mispricing. In addition to this, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help crystallize your views on TOY should the price fluctuate below the industry PE ratio.
If you'd like to know more about Spin Master as a business, it's important to be aware of any risks it's facing. While conducting our analysis, we found that Spin Master has 2 warning signs and it would be unwise to ignore these.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Spin Master Corp., a children’s entertainment company, creates, designs, manufactures, licenses, and markets various toys, entertainment, and digital games in North America, Europe, and internationally.
Flawless balance sheet with solid track record.