Is Hasbro, Inc. Stock a Buy Despite Toys R Us Bankruptcy?

Advertisement

HAS stock - Is Hasbro, Inc. Stock a Buy Despite Toys R Us Bankruptcy?

Source: Shutterstock

Over the last month, Hasbro, Inc. (NYSE:HAS) has seen its stock sink more than 7%. Those losses have accelerated in recent trading on news that Toys R Us is preparing to liquidate and shut its doors. Given how much inventory Toys R Us moves, it’s no wonder HAS stock has come under pressure. Should investors worry about Hasbro folding up next?

Put simply, no. But there are reasons to be concerned.

Toys R Us is a notable channel for toy sales, but it’s certainly not the biggest. Others like Target Corporation (NYSE:TGT), Walmart Inc (NYSE:WMT) and Amazon, Inc. (NASDAQ:AMZN) are still in place and move plenty of inventory. So long as kids want toys to play with, Hasbro and Mattel, Inc. (NASDAQ:MAT) will remain in demand.

That’s part of the concern, though. With video games, apps and tablets becoming more prevalent among toddlers and young children, the emphasis on toys is starting to fade. Even industry stalwart Lego has seen its share of trouble. Less demand in the toy space is bad news for the group, obviously, and the Toys R Us bankruptcy only highlights the industry’s issues.

So what should investors do?

Valuing Hasbro Stock

Sometimes it’s best to keep it simple. Instead of deciding whether a struggling company can turn around its woes, why not go with a company that’s already winning? Let’s look at Hasbro’s numbers to see what I mean.

Analysts expect the toymaker to grow revenue 1.9% this year and for earnings to slip 1.5%. Next year, forecasts call for earnings and revenue growth of 7.8% and 5.1% growth, respectively. Surprisingly, Hasbro has a pretty impressive history of beating analysts’ estimates. That will have to be the case if Hasbro stock is going to rally.

For HAS stock, we’re paying 15.2 times forward earnings estimates and will collect a 2.8% dividend yield. Unfortunately, a deep inspection doesn’t reveal positive trends. Operating cash flow and free-cash flow are in decline, debt continues to increase and margins are set to contract this year.

None of this is overwhelmingly attractive. Conversely though, Apple Inc. (NASDAQ:AAPL) is attractive. At the intro, we said toymakers are suffering from the proliferation of apps, video games and tablets. Who collects revenue on all of those fronts? Apple, of course.

These secular themes are not cyclical and should continue to benefit Apple well into the future. Its services revenue, which grew 18% year-over-year last quarter, continues to deliver high-margin results to the bottom line. Analysts expect earnings growth — not contraction — of 25% this year and another 15% in 2019. As for sales, they expect growth of 14.5% and 4.1%.

Apple is flush with cash and returns a massive amount to shareholders. Further, its margins are expanding this year, not contracting like Hasbro. Finally, the stock trades at just 13.5 times forward earnings, a lower valuation than HAS stock.

Trading HAS Stock

Despite HAS stock not looking that attractive vs. a company like Apple, doesn’t mean we can’t trade it. On that front, Hasbro stock has a few mixed signals. While there are still a few layers of support below (black lines), there are still some more bearish developments in the works.

chart of HAS stock price
Click to Enlarge
Source: Chart courtesy of StockCharts.com

First, HAS stock continues to test support No. 1, increasing the odds that it will gave way and Hasbro will fall to $85. This second level of support should provide a bounce.

However, traders will also notice that HAS stock broke below its multi-year trend-line support (blue line) — that’s not a good sign. Should Hasbro stock rally back and fail to get back above this line, it will be a bearish development. Conversely, it would be bullish if it can get back above it. If I had to be a buyer of Hasbro, it would only be for short-term bounces near support. Otherwise, I’d rather be long a name like AAPL.

We still think it’s heading to $200.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell had a position in Apple.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.


Article printed from InvestorPlace Media, https://investorplace.com/2018/03/hasbro-inc-stock-toys-r-us-bankruptcy/.

©2024 InvestorPlace Media, LLC