Over the past six months, Hasbro has been a great trade, beating the S&P 500 by 21.5%. Its stock price has climbed to $119.15, representing a healthy 26.8% increase. This was partly thanks to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Is there a buying opportunity in Hasbro, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why do we think Hasbro will underperform?
We’re happy investors have made money, but we’re passing on Hasbro for now. Here are three reasons you should be careful with HAS, plus one stock we’d rather own.
1. Revenue spiraling downwards
A company’s long-term performance is an indicator of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Hasbro’s demand was weak over the last five years as its sales fell at a 3.3% annual rate. This wasn’t a great result and signals it’s a low quality business.
2. Weak operating margin could cause trouble
Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
Hasbro’s operating margin has been trending up over the last 12 months and averaged 11.6% over the last two years. The company’s higher efficiency is a breath of fresh air, but its suboptimal cost structure means it still sports inadequate profitability for a consumer discretionary business.
3. EPS barely growing
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Hasbro’s EPS grew at 6.3% compounded annual growth rate over the last five years. On the bright side, this performance was better than its 3.3% annualized revenue declines and tells us management adapted its cost structure in response to a challenging demand environment.
Final judgment
We see the value of companies helping consumers, but in the case of Hasbro, we’re out. With its shares outperforming the market lately, the stock trades at 17.6× forward P/E (or $119.15 per share). This multiple tells us a lot of good news is priced in - we think other companies feature superior fundamentals at the moment. We’d recommend looking at the most entrenched endpoint security platform on the market.
Stocks we like more than Hasbro
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