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3 Toys & Games Stocks Likely to Navigate Industry Challenges
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The Zacks Toys - Games – Hobbies industry is being hurt by a decline in toy sales and high costs. However, benefits from the robust demand for smart toys, STEM (Science, Technology, Engineering and Math) toys, sports toys and fashion dolls and accessories bodes well. Industry participants have been undertaking efforts on the digital front and focusing on the better execution of marketing and promotional initiatives to drive growth. These firms, including Take-Two Interactive Software, Inc. (TTWO - Free Report) , Hasbro, Inc. (HAS - Free Report) and Mattel, Inc. (MAT - Free Report) , are likely to gain from the trends above.
Industry Description
The Zacks Toys - Games – Hobbies industry comprises companies that design, manufacture and sell various games and toys. While traditional toymakers primarily focus on marketing and selling action figures, accessories, dolls, youth electronics and arts and crafts, other industry players develop and market content and services on video game consoles, personal computers and mobile. Some industry participants offer video game platforms, playing cards, Karuta and other products, along with handheld and home console hardware systems and related software. Some companies also develop and operate retail and online military simulation games and provide multiplayer and single-player games.
4 Trends Shaping the Future of Zacks Toys - Games - Hobbies Industry
High Costs Remain Concerns: Cost inflation hurt the industry due to rising raw materials prices. Higher employee-related expenses are also hurting the industry. The firms have been resorting to product launches and shifting toward more technology-driven toys to boost sales, which might drive profits in the long haul. However, costs related to the initiatives might prove detrimental.
Toys Sales: The toy industry is currently facing a sales decline due to a mix of economic pressures and changing consumer behaviors. High prices and budget constraints make it difficult for many consumers to prioritize toy purchases. In the first half of 2024, retail sales in the U.S. toy industry showed signs of stabilization, with the overall market experiencing a slight decline of just 0.4% compared with the same timeframe last year, as reported by Circana.
STEM Toys Gaining Popularity: Amid declining sales of traditional toys, the robust demand for STEM toys has come as a breather. The Asia Pacific region emerged as a significant growth driver for STEM toys. Countries like India, Malaysia, Singapore and Thailand are witnessing rising demand for the same. Parents are focusing more on educational toys to teach their children. The rising demand for these toys reflects a growing recognition of their significance in preparing students for future careers. Factors such as heightened interest in coding and robotics toys have shaped the market landscape. Industry players are capitalizing on new distribution methods, developing digital-play components, exploring ventures with other industries and focusing on international expansion to drive growth. The industry has enormous growth potential in China and Brazil, which have massive populations of kids aged zero to 14 years.
Focus on Emerging Markets: Industry participants are focusing on expanding their presence in emerging markets in Eastern Europe, Asia and Latin and South America. Emerging markets offer greater opportunities for revenue growth than developed markets.
Zacks Industry Rank Indicates Dismal Prospects
The Zacks Toys – Games – Hobbies industry is grouped within the broader Zacks Consumer Discretionary Sector.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates dismal near-term prospects.
The Zacks Toys – Games – Hobbies industry currently carries a Zacks Industry Rank #212, which places it in the bottom 16% of 251 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1. Since April 30, 2024, the industry’s earnings estimates for the current year have moved south by 24.5%.
Before we present a few stocks that investors can take a look at, let’s analyze the industry’s recent stock-market performance and valuation picture.
Industry Underperforms the S&P 500
The Zacks Toys – Games – Hobbies industry has underperformed the S&P 500 Index. The industry has increased 6.2% over this period compared with the S&P 500’s rise of 32.6%. In the same time frame, the sector has gained 16.1%.
One-Year Price Performance
Industry's Current Valuation
Comparing the industry with the S&P 500 Index on the basis of forward 12-month price-to-earnings, which is a commonly-used multiple for valuing the industry, we see that the industry is trading at 23.86X, higher than the S&P 500’s 21.86X and the sector’s 16.63X.
Over the last five years, the industry traded as high as 36.28X and as low as 15.31X, with the median being 23.99X, as the chart shows.
3 Zacks Toys Stocks to Keep an Eye On
Take-Two Interactive Software: It is benefiting from continued improvement in gaming revenues, partially offset by sluggish advertising revenues. Management expects solid demand for well-known game franchises like Grand Theft Auto (GTA) and Red Dead Redemption. The recent launch of NBA 2K25 holds promise. The acquisition of Zynga established Take-Two as one of the largest publishers of mobile games.
Shares of this Zacks Rank #3 (Hold) company have increased 8.2% in the past year. Its earnings for the fiscal 2025 are anticipated to increase 0.5%. In the past 30 days, the earnings estimate for the fiscal 2025 has been revised upward by 0.4%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price & Consensus: TTWO
Hasbro: The company is benefiting from a favorable business mix and improved operations. Growth in consumer product licensing, increased MAGIC performance and improved efficiency in the supply chain added to the positives. Also, its focus on new product and content launches and strategic partnerships bode well. The company expects to grow operating profit by 50% in the next three years along with achieving operating profit margin growth of 20% by 2027.
Shares of this Zacks Rank #3 company increased 9.8% in the past year. Its earnings for 2024 are anticipated to increase 56.6%.
Price & Consensus: HAS
Mattel: The company is likely to benefit from the Optimizing for Profitable Growth program and strong demand for Hot Wheels. This and initiatives toward capturing the full value of its IPs and transforming itself into a high-performing toy company bode well. The company anticipates the toy segment to grow on the back of new product innovations, increased retail support, enhanced marketing and promotions and fresh content.
Shares of this Zacks Rank #3 company have increased 17.1% in the past three months. The company’s earnings in 2024 are likely to witness an increase of 16.3%.
Price & Consensus: MAT
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3 Toys & Games Stocks Likely to Navigate Industry Challenges
The Zacks Toys - Games – Hobbies industry is being hurt by a decline in toy sales and high costs. However, benefits from the robust demand for smart toys, STEM (Science, Technology, Engineering and Math) toys, sports toys and fashion dolls and accessories bodes well. Industry participants have been undertaking efforts on the digital front and focusing on the better execution of marketing and promotional initiatives to drive growth. These firms, including Take-Two Interactive Software, Inc. (TTWO - Free Report) , Hasbro, Inc. (HAS - Free Report) and Mattel, Inc. (MAT - Free Report) , are likely to gain from the trends above.
Industry Description
The Zacks Toys - Games – Hobbies industry comprises companies that design, manufacture and sell various games and toys. While traditional toymakers primarily focus on marketing and selling action figures, accessories, dolls, youth electronics and arts and crafts, other industry players develop and market content and services on video game consoles, personal computers and mobile. Some industry participants offer video game platforms, playing cards, Karuta and other products, along with handheld and home console hardware systems and related software. Some companies also develop and operate retail and online military simulation games and provide multiplayer and single-player games.
4 Trends Shaping the Future of Zacks Toys - Games - Hobbies Industry
High Costs Remain Concerns: Cost inflation hurt the industry due to rising raw materials prices. Higher employee-related expenses are also hurting the industry. The firms have been resorting to product launches and shifting toward more technology-driven toys to boost sales, which might drive profits in the long haul. However, costs related to the initiatives might prove detrimental.
Toys Sales: The toy industry is currently facing a sales decline due to a mix of economic pressures and changing consumer behaviors. High prices and budget constraints make it difficult for many consumers to prioritize toy purchases. In the first half of 2024, retail sales in the U.S. toy industry showed signs of stabilization, with the overall market experiencing a slight decline of just 0.4% compared with the same timeframe last year, as reported by Circana.
STEM Toys Gaining Popularity: Amid declining sales of traditional toys, the robust demand for STEM toys has come as a breather. The Asia Pacific region emerged as a significant growth driver for STEM toys. Countries like India, Malaysia, Singapore and Thailand are witnessing rising demand for the same. Parents are focusing more on educational toys to teach their children. The rising demand for these toys reflects a growing recognition of their significance in preparing students for future careers. Factors such as heightened interest in coding and robotics toys have shaped the market landscape. Industry players are capitalizing on new distribution methods, developing digital-play components, exploring ventures with other industries and focusing on international expansion to drive growth. The industry has enormous growth potential in China and Brazil, which have massive populations of kids aged zero to 14 years.
Focus on Emerging Markets: Industry participants are focusing on expanding their presence in emerging markets in Eastern Europe, Asia and Latin and South America. Emerging markets offer greater opportunities for revenue growth than developed markets.
Zacks Industry Rank Indicates Dismal Prospects
The Zacks Toys – Games – Hobbies industry is grouped within the broader Zacks Consumer Discretionary Sector.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates dismal near-term prospects.
The Zacks Toys – Games – Hobbies industry currently carries a Zacks Industry Rank #212, which places it in the bottom 16% of 251 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1. Since April 30, 2024, the industry’s earnings estimates for the current year have moved south by 24.5%.
Before we present a few stocks that investors can take a look at, let’s analyze the industry’s recent stock-market performance and valuation picture.
Industry Underperforms the S&P 500
The Zacks Toys – Games – Hobbies industry has underperformed the S&P 500 Index. The industry has increased 6.2% over this period compared with the S&P 500’s rise of 32.6%. In the same time frame, the sector has gained 16.1%.
One-Year Price Performance
Industry's Current Valuation
Comparing the industry with the S&P 500 Index on the basis of forward 12-month price-to-earnings, which is a commonly-used multiple for valuing the industry, we see that the industry is trading at 23.86X, higher than the S&P 500’s 21.86X and the sector’s 16.63X.
Over the last five years, the industry traded as high as 36.28X and as low as 15.31X, with the median being 23.99X, as the chart shows.
3 Zacks Toys Stocks to Keep an Eye On
Take-Two Interactive Software: It is benefiting from continued improvement in gaming revenues, partially offset by sluggish advertising revenues. Management expects solid demand for well-known game franchises like Grand Theft Auto (GTA) and Red Dead Redemption. The recent launch of NBA 2K25 holds promise. The acquisition of Zynga established Take-Two as one of the largest publishers of mobile games.
Shares of this Zacks Rank #3 (Hold) company have increased 8.2% in the past year. Its earnings for the fiscal 2025 are anticipated to increase 0.5%. In the past 30 days, the earnings estimate for the fiscal 2025 has been revised upward by 0.4%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price & Consensus: TTWO
Hasbro: The company is benefiting from a favorable business mix and improved operations. Growth in consumer product licensing, increased MAGIC performance and improved efficiency in the supply chain added to the positives. Also, its focus on new product and content launches and strategic partnerships bode well. The company expects to grow operating profit by 50% in the next three years along with achieving operating profit margin growth of 20% by 2027.
Shares of this Zacks Rank #3 company increased 9.8% in the past year. Its earnings for 2024 are anticipated to increase 56.6%.
Price & Consensus: HAS
Mattel: The company is likely to benefit from the Optimizing for Profitable Growth program and strong demand for Hot Wheels. This and initiatives toward capturing the full value of its IPs and transforming itself into a high-performing toy company bode well. The company anticipates the toy segment to grow on the back of new product innovations, increased retail support, enhanced marketing and promotions and fresh content.
Shares of this Zacks Rank #3 company have increased 17.1% in the past three months. The company’s earnings in 2024 are likely to witness an increase of 16.3%.
Price & Consensus: MAT