Though shares of toy manufacturer Hasbro (NASDAQ:HAS) popped higher on Tuesday morning, they’ve been choppy over recent sessions. Yesterday, a Bank of America analyst warned that Hasbro is effectively killing its golden goose through poor product strategy decisions. In the trailing five days, HAS stock finds itself below parity to the tune of nearly 3%.
According to a Polygon report, research analyst Jason Haas warned that the famed toy company may destroy the long-term value of its marquee product Magic: The Gathering. Representing a tabletop game featuring collectible cards, the entertainment piece commands a strong loyal fanbase. Apparently sensing the opportunity to milk the calf for all it’s worth, management set out to print more cards.
Unfortunately, Haas believes this is the wrong move. “Hasbro is overproducing Magic cards which has propped up recent results,” wrote the analyst in a research note. “Card prices are falling, game stores are losing money, collectors are liquidating and large retailers are cutting orders.”
Of course, in an environment where consumer sentiment slipped to near-historic lows, Hasbro must throw everything it can. At the same time, management cannot afford to lose the core driver of HAS stock. According to Haas, Magic “alone accounts for some 15% of Hasbro’s annual revenue and some 35% of its annual earnings.”
Possible Desperation Creeping Into HAS Stock
Per the Polygon report, sales of the collectible card game “nearly doubled over the pandemic, and Hasbro has urged that growth onward with additional new releases throughout 2021 and 2022.” On paper, this sense of urgency might theoretically boost HAS stock. However, the BofA analyst warns that this growth curve may be nearing its end.
“Magic has grown primarily by extracting more revenue from each player rather than by growing its player base,” Haas remarked. Therefore, any decisions to dilute or otherwise hurt this base may lead to serious consequences.
“The increased supply has crashed secondary market prices which has caused distributors, collectors and local game stores to lose money on Magic,” Haas wrote. “As a result, we expect they’ll order less product in future releases.”
What may be particularly troublesome for HAS stock centers on the underlying company’s decision to distribute collectible cards it promised never to reprint. Per the analyst, the decision caused panic, leading to mass-scale liquidations as fans question the scarcity component of their Magic cards.
Not surprisingly, Bank of America issued a double downgrade for HAS stock, dropping it to “underperform” from “buy.” Since the start of the year, shares slipped nearly 43%.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
