Mattel Stock Up 10% in October – Time to Buy Mattel Stock?

The price of Mattel stock is up 10% so far this month and it is surging nearly 5% in pre-market stock trading action following the release of the firm’s financial results covering the third quarter of its 2021 fiscal year as the company beat analysts’ estimates for both revenues and earnings.

For the three months ended on 30 September, Mattel reported net sales of $1.76 billion resulting in a 7% jump in a constant-currency basis compared to the same period a year ago. Higher sales in North America were the primary driver for this positive top-line performance. Analysts had estimated revenues of $1.69 billion for the quarter according to data compiled by Capital IQ.

The firm’s secondary brands experienced the most significant jump in gross billings – a non-GAAP metric used by Mattel to track its per-category performance – while the action figures, building sets, games, and other segment jumped 26% on a year-on-year basis.

During this same period, gross margins experienced a 280 basis points drop landing at 47.8% compared to the same period a year ago while the firm reported net income of $813 million and adjusted earnings per share of $0.84 that resulted in a 10.6% year-on-year decline. However, this bottom-line figure exceeded analysts’ estimates by 11 cents.

The positive performance of the stock price this morning may have come from some upbeat comments from the management team concerning the firm’s positioning for the holidays considering the supply-chain disruptions most firms are experiencing.

In this regard, Ynon Kreiz, Mattel’s Chief Executive Officer, told Reuters: “We’ve been working through supply chain disruptions, it’s not a normal year. But even with that, we expect to have lots of toys under trees this Christmas holiday”.

Can Mattel stock keep surging on the back of this positive earnings report? In the following article, I’ll take a look at the price action and fundamentals of MAT stock to possibly answer that question.

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Mattel Stock – Technical Analysis

Today’s pre-market action in Mattel is quite exciting as it would result in a full-blown reversal of the latest downtrend the stock had experienced amid the market’s concerns about the impact of supply-chain related woes for the firm.

Despite this recent drop, the price of MAT stock is up over 16% so far this year compared to a 21% jump experienced by the S&P 500 during the same period.

If this morning’s pre-market action spills over to the live session as is, it would result in a break of the stock’s short-term moving averages and would also push the price above the 200-day moving average.

Momentum oscillators have been steadily surging recently following some broad-market strength with the Relative Strength Index (RSI) standing at 57 – bullish – while the MACD has moved near positive territory and is being accompanied by steadily increasing positive histogram readings.

The positive tone of this latest quarterly earnings report, which included some assurance that the company will live up to the market’s expectations for what is the most important quarter of the year for it, may support the continuation of the recent bull run as long as the price remains above its short-term moving averages.

Mattel Stock – Fundamental Analysis

Mattel’s revenues have been on a downtrend in the past five years, moving from $5.45 billion in 2016 to $4.6 billion by the end of last year. Today, the company issued guidance for the full 2021 fiscal year, with sales being expected to land at $4.6 billion.

This means that even though the firm may have taken adequate steps to reduce the impact of these global supply-chain disruptions, its top-line performance remains quite stalled.

Meanwhile, gross profit margins for the year are expected to land at around 48% while the firm’s net profit margins have been improving considerably in the past few years, moving from negative territory to a positive 6.3% figure in the last twelve months.

At the moment, the firm’s forward P/E ratio is standing at 17.7 while its EV-to-EBITDA multiple is standing at 11.5 using data from the past twelve months.

It is important to note that Mattel’s debt is quite high as its long-term debt stands at $2.73 billion on total assets of $6.2 billion. Even though the firm’s solvency is not in question, its ability to reduce this burden in the future will likely have a positive effect on its valuation.

All things considered, Mattel seems to be fairly valued at its current levels and that limits the upside the stock can experience considering the presence of industry-wide headwinds and the firm’s debt situation. Moving forward, the outlook for the stock from a fundamental standpoint is neutral and this means that Mattel may continue to underperform broad-market indexes.

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