Over the last six months, Hasbro’s shares have sunk to $94.38, producing a disappointing 10.9% loss - a stark contrast to the S&P 500’s 11.7% gain. This might have investors contemplating their next move.
Is now the time to buy Hasbro, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Do We Think Hasbro Will Underperform?
Even though the stock has become cheaper, we’re cautious about Hasbro. Here are three reasons we avoid HAS, plus one stock we’d rather own.
1. Revenue Spiraling Downwards
A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Hasbro struggled to consistently generate demand over the last five years as its sales dropped at a 3.5% 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 an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses — everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.
Hasbro’s operating margin has been trending up over the last 12 months and averaged 9.7% 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
Analyzing the long-term change in earnings per share (EPS) shows whether a company’s incremental sales were profitable — for example, revenue could be inflated through excessive spending on advertising and promotions.
Hasbro’s EPS grew at 2.7% compounded annual growth rate over the last five years. On the bright side, this performance was better than its 3.5% 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. Following the recent decline, the stock trades at 15.3× forward P/E (or $94.38 per share). While this valuation is reasonable, we don’t see a big opportunity at the moment. There are better stocks to buy right now. We’d suggest looking at an all-weather company that owns household favorite Taco Bell.
Stocks We Would Buy Instead of Hasbro
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