2 Toys & Games Stocks to Watch From a Prospering Industry

The Zacks Toys - Games - Hobbies industry is experiencing a resurgence, with U.S. sales up 6% in the first half of the year driven by increased units and average selling prices, alongside robust demand for STEM toys and strategic expansion into emerging markets. While the industry has recently underperformed the S&P 500 and faces cost inflation, it maintains a favorable Zacks Industry Rank (#97) and trades at a lower forward P/E multiple (13.01x) than the broader market. Individual companies like Hasbro (HAS) demonstrate strong prospects with projected 21.5% earnings growth in 2025, while Mattel (MAT) focuses on IP monetization and profitable growth initiatives.

Analysis

The U.S. Toys & Games industry is exhibiting a notable recovery in 2025 following a period of weakness, with sales increasing 6% in the first half of the year, driven by a 3% rise in units sold and a 3% increase in average selling price. This rebound is supported by structural tailwinds, including strong consumer demand for STEM-focused educational toys and strategic expansion into high-growth emerging markets. Despite these positive fundamentals, the industry faces persistent headwinds from cost inflation and has underperformed the broader market, gaining only 7.6% over the past year compared to the S&P 500's 20.5% rise. However, from a valuation perspective, the sector appears attractive, trading at a forward P/E of 13.01x, which is a significant discount to the S&P 500's 22.89x and below its own 5-year median of 14.14x. A clear divergence in performance is evident between the two major players mentioned. Hasbro (HAS) shows strong momentum, with its stock up 17.9% in the past year, supported by a projected 21.5% earnings increase for 2025 and successful cost-saving initiatives. Conversely, Mattel (MAT) is facing challenges, with its stock declining 0.8% and a projected earnings contraction of 0.6% for 2025, indicating that its IP monetization and growth programs have yet to translate into bottom-line growth.

Key Decisions for Investors

• Given the industry's recovery and discounted valuation, investors may find opportunities in the toy sector but should be highly selective, focusing on companies demonstrating clear earnings growth and operational efficiency.
• Hasbro (HAS) presents as a strong candidate for a long position, supported by its robust 21.5% earnings growth forecast for 2025, effective cost-cutting measures, and positive stock performance.
• For Mattel (MAT), a hold or cautious approach is warranted; investors should monitor for tangible results from its IP and growth strategies before committing new capital, given the forecasted earnings decline and recent share price weakness.
• Key risk factors to monitor across the sector include rising input and labor costs, which could erode margins and temper the positive demand outlook.