Mattel: MAT // Purple 2 // Strike Price = {subscribe}
- 10 year CAGR = -8.5% (May 15, 2013 to 2023)
- 5 year CAGR = 5% (May 15, 2018 to 2023 || $15.06 -> $19.20)
- Future Growth Rate Estimate: {subscribe}
- This is generous compared to their 10 year track record, but the 5 year record is picking up since their Net Income, etc 💩the 🛏️ from 2017 to 2019 and they appear to have a growing tailwind.
- 5 year Price Target = {subscribe} at a Price to Revenue multiple of {subscribe}
- sector median is 0.82 and MAT is 1.26 with a 5 year avg. of 1.16
- This price to revenue multiple we used is a little higher than they average but is still low compared to the upper echelon of mature companies in this sector (e.g. Nike at a 5 year avg. of 4.2).
- Price to Free Cash Flow / Share = 26.7 🤔
- Operating Margin = 13% 🤔
- Return on Invested Capital = 19.2% 😀
- Long Term Debt to Total Assets = 38% 😢
- Cash & Equivalents to Total Operating Expense = 42.5% 😀
// TL;DR
The Barbie World is not really in our circle of competence, but there is potentially a decent wave to surf for a while with the release of the latest Barbie movie featuring Margot Robbie and Ryan Gosling. At worst you are likely buying a company with a CAGR that struggles to match the index but has a legacy of toy IP and sales that can withstand. At best, the Barbie make-over propels her and the company to the next level of stardom and makes our 5 year price target seem juvenile. But at this point, who knows how much extra merch the new movie is going to move.
// WHY BUY
TBH, we can’t bring ourselves to do full due diligence on this company but it does have a tailwind that some of y’all may appreciate.
The reason this is even on our radar is because of Dumb Money Live. Three middle-aged guys recently spent 30 minutes talking about the merits of Mattel and Barbie. Oy vey. But the main guy, Chris Camillo, figured out something he calls “social arbitrage” as a way to invest based on popularity of products etc based on social media mentions and likes. A modern twist on Peter Lynch cruising the mall for hot products. Chris turned some money into a boatload of money and was featured in the book Unknown Market Wizards and who knows where else. Last year Dumb Money called out Crocs and that turned out to be a great trade, but the stock price was well below the company’s financial valuation metrics. Mattel is not so obviously under-valued. About 75% of intrinsic value we might argue. But Mattel has an interesting catalyst that could re-mainstream one of its iconic legacy brands: Barbie.
But first. As well as Barbie, Mattel makes Hot Wheels, Fisher-Price, American Girl, Thomas & Friends, UNO, MEGA and who knows what else. They also have licensing deals for Star Wars, Jurassic World, etc. The company was founded in 1945 and is HQ’d in El Segundo. They know America and toys.
We have access to 10 years of their financial statements and things got ugly several years ago. Net income hit a low in 2017. Not exactly sure why, but that was the year Toy ‘R’ Us went bankrupt. Anyway, the current Mattel CEO, Margo Georgiadis, took over in January 2017 and the numbers have been steadily rising until the market turned sour grapes in mid-2021 until now.
Net Income over the last 10 years (in millions):
- 2013: $903.9
- 2016: $312.9
- 2017: ($1,054.6)
- 2019: ($218.8)
- 2020: $123.6
- 2021: $903.0
- 2022: $393.9
Slight problem; likely supply chain and recession fear, but seems bearable as long as management is on their game.
An indication they are on their game is giving Barbie a make-over. As long as they don’t do a New Coke kinda botch-job.
Introducing Margot Robbie, Ryan Gosling and a well known supporting cast onto the scene. … skip our cultural analysis … On the Dumb Money Live episode they said the pre-screener release leaks on Reddit were that the movie was funny and great, self-deprecating and was on brand with the modern female empowerment movement. Watch their vid for the rest of their analysis, but the bottom line is multi-generational appeal of an iconic legacy brand and if the movie is a hit, Mattel is gonna be moving some merchandise at a rapid pace in H2 2023. It appears a basic Barbie doll retails for CA$28 on Amazon (~ US$21).
One further why buy anecdote; a tattooed 20 year old bartender at a hipster cocktail bar recently said to us that she has already picked her outfit for when going to the movie. Just sayin’ …
// ChatGPT: WHY BUY
There could be many reasons why someone would want to buy Mattel, the toy company that makes Barbie. One possible reason is that they see it as a profitable investment opportunity, as Mattel is a well-established brand with a strong presence in the toy industry. Additionally, they may be interested in acquiring Mattel’s intellectual property, including the Barbie brand, to expand their own product offerings or to leverage the brand’s popularity for licensing and merchandising opportunities.
// CONCLUSION
The numbers aren’t great but are improving since the 2017 toy store meltdown. The price is around 75% of our intrinsic valuation, but for those interested in the thesis for this company we are going to be quite lenient with the Strike Price. The company is stalwart enough that bankruptcy is unlikely even in a market pukefest; parents will always want to buy a toy or two for their kid. That said, the organic growth rate of this company is below desirable for us and is not boosted by a dividend.
However, they have a catalyst of significance on their hands as Barbie becomes a modern woman of power and self-deprecation. This could give revenue and thus earnings an unexpected jolt that could reward those who act upon the opportunity early.
// CATALYSTS
Earnings call July 26, 2023 which is 5 days after the Barbie movie, release date Friday July 21, 2023. BARBIE Official Trailer 2
// RISKS
The movie flops or is at best a one-hit wonder.
// NEWS & COMMENTS
Mar 15, 2023
SA // buy: Visible Top Line Growth Cadence With Revised Capital Allocation Strategy
“In my opinion, MAT stock is an alright investment due to the relatively easy narrative – better execution, improved balance sheet, and return capital. That way I see it, MAT has a visible path to revenue growth in 2023 thanks to factors like category and brand momentum, the relaunch of its catalogue IP, and the robust content rebound. With that, I recommend a buy rating, however, investors should be cautious of the short-term volatility in FY23 as there is elevated uncertainty (performance is weighed on 2H23). The catalyst to size up in 2H23 is margin expansion as inflationary pressures ease.”
// GGI 💬
Yup.
