Mattel (MAT)

Toy manufacturing and entertainment company (NASDAQ:MAT) beat Wall Street’s revenue expectations in Q1 CY2025, with sales up 2.1% year on year to $826.6 million. Its non-GAAP loss of $0.03 per share was 70.4% above 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).

Reviewing a company’s long-term sales performance reveals insights into its 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 4.1% compounded annual growth rate. This was below our standard 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 annualized revenue growth of 1.8% over the last two years was below its five-year trend.

This quarter, Mattel reported modest year-on-year revenue growth of 2.1% but beat Wall Street’s estimates by 4.4%.

Looking ahead, sell-side analysts expect revenue to remain flat over the next 12 months. This projection is underwhelming and indicates its newer products and services will not catalyze better top-line performance yet.

Mattel’s operating margin might fluctuated slightly over the last 12 months but has generally stayed the same, averaging 13% over the last two years. This profitability was solid for a consumer discretionary business and shows it’s an efficient company that manages its expenses well.

In Q1, Mattel generated an operating profit margin of negative 6.4%, down 3.2 percentage points year on year. This contraction shows it was less efficient because its expenses grew faster than 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 full-year EPS flipped from negative to positive over the last five years. This is encouraging and shows it’s at a critical moment in its life.

In Q1, Mattel reported EPS at negative $0.03, up from negative $0.05 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Mattel’s full-year EPS of $1.65 to stay about the same.

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 14.3% over the last two years, better than the broader consumer discretionary sector.

Mattel burned through $11.4 million of cash in Q1, equivalent to a negative 1.4% margin. The company’s cash burn increased meaningfully year on year and is a deviation from its longer-term margin, indicating it is a seasonal business that must build up inventory during certain quarters.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative 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 18.3%, 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 $1.24 billion 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 $1.06 billion of EBITDA over the last 12 months, we view Mattel’s 1.0× net-debt-to-EBITDA ratio as safe. We also see its $54.52 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 were impressed by how Mattel blew past analysts’ revenue, EPS, and EBITDA expectations this quarter. On the other hand, it pulled its guidance due to macro uncertainty. Zooming out, we think this was a mixed quarter. The market seemed to be hoping for more, and the stock traded down 2.3% to $15.80 immediately after reporting.

Updated: July 10, 2025 at 11:05 PM EDT

When considering an investment in Mattel, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

Mattel isn’t a terrible business, but it isn’t one of our picks. To kick things off, its revenue growth was weak over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while Mattel’s astounding EPS growth over the last five years shows its profits are trickling down to shareholders, its projected EPS for the next year is lacking.

Mattel’s P/E ratio based on the next 12 months is 12.2x. This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We're pretty confident there are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $23.79 on the company (compared to the current share price of $20.45).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.