Spin Master Corp

Spin Master Corp (TSX: TOY) is a Canada-based children’s entertainment company which creates, designs, manufactures, and markets a portfolio of toys, games, products, and entertainment properties. The company’s operating regions are North America, Europe, and Rest of World.

Why Should Investors Book Profit?

• Clocked lower free cash flows: The company recorded free cash flow of USD 65.8 million in the reported period, down from USD 96.0 million, owing to reduced cash flows from operational activities of USD 85.8 million, down from USD 117.2 million, owing to an increase in net working capital.
• Weak liquidity profile: In Q3 2021, the company's current ratio stood at 1.93x against the industry median of 2.00x. This lower ratios against the industry indicates that the company's short-term obligations are growing faster than its resources to cover them, which is not a good indication.
• Higher average collection period: The company is having a higher average Accounts Receivable day of 48.9 days, against the industry median of 33.6 days. A higher average collection period indicates that the organization collects payments in a slower manner. This may create a difficulty for the company to have enough cash on hand to meet their financial obligations.
• Exhausted technical indicators: Recently, the stock witnessed a healthy rally on the daily price chart and has moved above the upper band of the Bollinger band, indicating the stock is perhaps overbought and due for a price correction or a consolidation. Furthermore, the momentum oscillator RSI (14-Period) is trading at ~73.08 levels, which also indicates that the stock is in overbought zone and there is a deep possibility of price consolidation or correction.

Source: REFINITIV, Analysis by Kalkine Group 

Valuation Methodology (Illustrative): Price/Earnings

Stock recommendation

Even though the company delivered a decent financial and operating results in Q3 2021, its free cash flows in the reported period fell to USD 65.8 million compared to USD 96.0 million, driven by lower cash flows from operating activities. Furthermore, the company's liquidity ratio is on lower side, and is having a higher average collection period compared to the industry median, indicating a weak liquidity profile and slower pace of payment collection. Moreover, the group is witnessing sequentially degrading margins, reflects the pressure on the company. Additionally, the technical indicator suggests that stock is perhaps overbought and due for a price correction or a consolidation. Therefore, based on the above rationale and valuation, we recommend a “Sell” rating on the stock at the closing price of CAD 48.93 on November 9, 2021.

*The reference data in this report has been partly sourced from REFINITIV.

Disclaimer

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