Everybody's been talking about blockbuster movie Barbie these days, and that's resulted in a lot of interest in Mattel (MAT -0.22%). This venture into filmmaking proved a success for the toymaker, as Barbie, bringing in $1.4 billion globally, became the biggest U.S. and worldwide release of the year.
Mattel shares have benefited from the fashion doll's silver screen debut, rising almost 20% year to date. But now, as some of the excitement about the movie fades and fans turn to new releases, will excitement about Mattel fade too? Today, is the stock a buy, a sell, or a hold? Let's take a closer look at this toy giant and find out.
Toys, not movies
First, it's important to note that, although the Barbie movie is a big deal, Mattel's business is primarily toys -- not movies. Mattel, as a producer of the film, generates revenue from it, but as my colleague Collin Brantmeyer writes, the company isn't taking the lion's share. So, I wouldn't invest in Mattel stock based solely on the success of Barbie or any future movies.
But here's what makes this venture into filmmaking so fantastic -- and it goes beyond box office receipts. It offers Mattel the opportunity to sign licensing agreements for a variety of products based on the particular film, and it gives the company a reason to launch a whole line of its own new products, also based on the film.
In the case of Barbie, Mattel agreed to more than 165 consumer product partnerships. Mattel's releases of toys and products related to the movie have sold out -- and the company plans to launch more from now through the end of the year. Earlier this year, the company said all licensing agreements are "margin-accretive opportunities," so movies are translating into growth for Mattel.
As of now, the company has about 14 film projects in the works, involving some of its other top toy brands, such as Hot Wheels and American Girl. If they follow in the footsteps of Barbie when it comes to licensing deals and product launches, Mattel will indeed reach the goal of broadening the earnings power of its intellectual property.
Now, let's get back to the idea of just toys. Here, things have been a bit rough in recent times as the economic environment weighed on consumers -- and that meant retailers struggled with excess toy inventory. As a result, Mattel reported decreases in net sales and net income in the second quarter.
Gaining market share
But it's important to keep in mind these troubled times won't last forever, and Mattel, with its strong portfolio of brands, should rebound as the economic situation recovers. Even in the current environment, the company still managed to gain market share and grow free cash flow during the quarter.
MAT Free Cash Flow data by YCharts
Mattel increased its share in its three top categories of dolls, vehicles, and infant, toddler, and preschool, according to consumer research company Circana. And Barbie was the No. 1 doll worldwide. Mattel also has demonstrated confidence in its future by resuming share buybacks this year and plans to continue repurchasing shares.
Now, let's take a look at share price. Yes, Mattel is trading at its highest in relation to trailing 12-month earnings since about 2021. Prior to that time, though, valuation was much higher.
MAT PE Ratio data by YCharts
Today, considering Mattel's movie projects, the company has new opportunities to drive revenue growth. All of this means the stock doesn't look particularly expensive today.
So, should you buy, sell, or hold? Mattel looks like a buy and hold for the long term considering its strong portfolio of products such as Barbie and Hot Wheels and its market share growth in key categories. And the company's expansion into film and entertainment should further boost revenue.
Mattel shares may not immediately soar from today's level as Barbie the movie shifts from the big screen to streaming and the novelty of Barbie's perfect pink life fades. But Mattel's earnings opportunities aren't likely to fade -- and should improve along with the economy. All of that means, even after Barbie leaves the big screen, Mattel shares still could shine over time.
