Mattel (MAT)

Toy manufacturing and entertainment company (NASDAQ:MAT) fell short of the market’s revenue expectations in Q3 CY2025, with sales falling 5.9% year on year to $1.74 billion. Its non-GAAP profit of $0.89 per share was 15.9% below analysts’ consensus estimates.

Company Overview

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.

The toys and electronics industry presents both opportunities and challenges for investors. Established companies often enjoy strong brand recognition and customer loyalty while smaller players can carve out a niche if they develop a viral, hit new product. The downside, however, is that success can be short-lived because the industry is very competitive: the barriers to entry for developing a new toy are low, which can lead to pricing pressures and reduced profit margins, and the rapid pace of technological advancements necessitates continuous product updates, increasing research and development costs, and shortening product life cycles for electronics companies. Furthermore, these players must navigate various regulatory requirements, especially regarding product safety, which can pose operational challenges and potential legal risks.

Competitors in the toy and entertainment industry include Hasbro (NASDAQ:HAS), Funko (NASDAQ:FNKO), and Jakks Pacific (NASDAQ:JAKK).

A company’s long-term performance is an indicator 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 3.3% compounded annual growth rate. This fell short of our benchmark for the consumer discretionary sector and is a rough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or trend. Mattel’s recent performance shows its demand has slowed as its revenue was flat over the last two years.

This quarter, Mattel missed Wall Street’s estimates and reported a rather uninspiring 5.9% year-on-year revenue decline, generating $1.74 billion of revenue.

Looking ahead, sell-side analysts expect revenue to grow 7.1% over the next 12 months. While this projection indicates its newer products and services will catalyze better top-line performance, it is still below average for the sector.

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Mattel’s operating margin has shrunk over the last 12 months, but it still averaged 12.7% over the last two years, decent for a consumer discretionary business. This shows it generally does a decent job managing its expenses.

This quarter, Mattel generated an operating margin profit margin of 21.9%, down 6 percentage points year on year. This contraction shows it was less efficient because its expenses increased relative to its revenue.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Mattel’s EPS grew at an astounding 42.3% compounded annual growth rate over the last five years, higher than its 3.3% annualized revenue growth. However, this alone doesn’t tell us much about its business quality because its operating margin didn’t improve.

In Q3, Mattel reported adjusted EPS of $0.89, down from $1.14 in the same quarter last year. This print missed analysts’ estimates, but we care more about long-term adjusted EPS growth than short-term movements. Over the next 12 months, Wall Street expects Mattel’s full-year EPS of $1.40 to grow 25.7%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Mattel has shown impressive cash profitability, giving it the option to reinvest or return capital to investors. The company’s free cash flow margin averaged 13% over the last two years, better than the broader consumer discretionary sector.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although Mattel hasn’t been the highest-quality company lately because of its poor top-line performance, it historically found a few growth initiatives that worked. Its five-year average ROIC was 18.8%, higher than most consumer discretionary businesses.

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 significantly 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.

Mattel reported $691.9 million of cash and $2.34 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $942.1 million of EBITDA over the last 12 months, we view Mattel’s 1.7× net-debt-to-EBITDA ratio as safe. We also see its $68.02 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We struggled to find many positives in these results. Its revenue missed and its EPS fell short of Wall Street’s estimates. Overall, this was a softer quarter. The stock traded down 4.4% to $18.02 immediately following the results.

Updated: December 4, 2025 at 9:07 PM EST

Before making an investment decision, investors should account for Mattel’s business fundamentals and valuation in addition to what happened in the latest quarter.

We see the value of companies helping consumers, but in the case of Mattel, we’re out. For starters, its revenue growth was weak over the last five years. And while its solid EPS growth over the last five years shows its profits are trickling down to shareholders, the downside is its relatively low ROIC suggests management has struggled to find compelling investment opportunities. On top of that, its low free cash flow margins give it little breathing room.

Mattel’s P/E ratio based on the next 12 months is 12.4x. This valuation is reasonable, but the company’s shaky fundamentals present too much downside risk. There are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $23.92 on the company (compared to the current share price of $21.10).