Since September 2024, Mattel has been in a holding pattern, posting a small return of 4.2% while floating around $20.04.
Is there a buying opportunity in Mattel, 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.
We don't have much confidence in Mattel. Here are three reasons why you should be careful with MAT and a stock we'd rather own.
Why Do We Think Mattel Will Underperform?
Known for the creation of iconic toys such as Barbie and Hotwheels, Mattel (NASDAQ:MAT) is a global children's entertainment company specializing in the design and production of consumer products.
1. Long-Term Revenue Growth Disappoints
A company’s long-term sales performance is one signal of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last five years, Mattel grew its sales at a sluggish 3.6% compounded annual growth rate. This fell short of our benchmark for the consumer discretionary sector. 
2. Projected Revenue Growth Is Slim
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Mattel’s revenue to rise by 1.8%. Although this projection indicates its newer products and services will fuel better top-line performance, it is still below average for the sector.
3. New Investments Fail to Bear Fruit as ROIC Declines
ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Mattel’s ROIC has decreased over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.
Final Judgment
We cheer for all companies serving everyday consumers, but in the case of Mattel, we’ll be cheering from the sidelines. That said, the stock currently trades at 13× forward price-to-earnings (or $20.04 per share). While this valuation is reasonable, we don’t see a big opportunity at the moment. There are better investments elsewhere. We’d suggest looking at our favorite semiconductor picks and shovels play.
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