3 Toys & Games Stocks to Keep an Eye on Amid Rising US Sales

The Zacks Toys - Games - Hobbies industry is experiencing growth, driven by demand for STEM toys, expansion in emerging markets, and a surge in U.S. toy sales fueled by adult collectors, with the industry outperforming the S&P 500, rising 13.4% versus 11.9% over the past year. Despite cost inflation concerns, the industry's Zacks Industry Rank is in the top 14%, indicating bright near-term prospects, and key players like JAKKS Pacific (up 18.9% in the past year), Mattel (up 8%), and Hasbro (up 13.4%) are employing strategies such as licensing, retail expansion, and product innovation to boost sales and earnings.

Analysis

The Zacks Toys - Games - Hobbies industry exhibits promising near-term prospects, underscored by its Zacks Industry Rank #6, placing it in the top 14% of 244 Zacks industries, and its outperformance of the S&P 500 with a 13.4% rally compared to the S&P 500's 11.9% rise over the past year. Growth is propelled by several trends: increasing demand for STEM toys as parents seek educational value, strategic expansion into emerging markets like China and Brazil, and a notable 6% increase in U.S. toy industry sales (with a 3% rise in units sold) through April 2025, largely driven by adult collectors who spent $1.8 billion in Q1 2025, particularly on trading cards such as Pokémon and One Piece, and building sets. Consumers are also showing a bifurcated purchasing pattern, with strong sales in both premium and value-priced toys, potentially influenced by tariff concerns. Despite these positive indicators, the industry faces headwinds from cost inflation due to rising raw material prices and higher employee-related expenses, which companies are attempting to mitigate through new product launches and technology-driven toys, though these initiatives also entail significant costs. From a valuation perspective, the industry trades at a forward 12-month P/E of 13.05X, which is below the S&P 500's 21.94X and its own 5-year median of 14.34X, suggesting a potentially attractive entry point. Key companies are adapting: JAKKS Pacific (Zacks Rank #1 Strong Buy, shares up 18.9% in past year) is leveraging its Freight on Board model, licensing, and anticipates a 9.5% earnings increase in 2025. Mattel (Zacks Rank #3 Hold, shares up 8%) benefits from strong brands like Disney Princess, Hot Wheels, and Barbie, with 2025 earnings projected to be flat year-over-year. Hasbro (Zacks Rank #3 Hold, shares up 13.4%) sees strength in its MAGIC ecosystem and licensing, projecting a 5.2% earnings increase for 2025 while focusing on sourcing diversification and product innovation.

Key Decisions for Investors

• Consider a long position in the Toys - Games - Hobbies industry given its strong Zacks Industry Rank, outperformance relative to the S&P 500, and attractive valuation, but remain cognizant of inflationary cost pressures.
• Evaluate JAKKS Pacific for potential investment due to its Strong Buy rating, significant share price appreciation, and positive 2025 earnings growth outlook of 9.5%, driven by its strategic initiatives.
• Approach Mattel and Hasbro with a hold or cautious outlook, reflecting their Zacks #3 (Hold) ratings; monitor Mattel for catalysts to drive earnings beyond the current flat projection for 2025 and Hasbro for successful execution of its growth strategies despite a more modest 5.2% earnings growth forecast.
• Monitor the sustainability of U.S. toy sales growth, particularly the adult collectibles segment, and the industry's ability to manage input costs and pass them on, as these factors will be critical for continued profitability.
• Assess opportunities in companies effectively capitalizing on STEM toy demand and international expansion, as these are highlighted as significant long-term growth drivers for the sector.