Consumer

Shelly Banjo is a Bloomberg Gadfly columnist covering retail and consumer goods. She previously was a reporter at Quartz and the Wall Street Journal.

The Force may still be with Hasbro, but it may not be able to keep lifting the toy seller's stock price. 

The maker of Monopoly and Play-Doh on Monday said its revenue rose by 10 percent in the second quarter from the year before, with toys tied to "Frozen," "Star Wars," and other movies boosting sales. But Hasbro stock dropped by as much as 7 percent on Monday, its biggest intraday decline in 9 months. It's a sign investors think Hasbro's shares are already priced for perfection. 

Putting Away The Toys
Hasbro's shares fell as much as 7% Monday, despite beating earnings expectations
Source: Bloomberg
Intraday times are displayed in ET.

One big worry for Wall Street is a second consecutive quarter of slowing growth in Hasbro's boys segment, stoking fears Star Wars toys aren't lighting up sales as much as hoped. Hasbro said it expects Star Wars revenue growth to be "roughly flat" from last year, even though Disney is expected to release another movie in the franchise, "Rogue One," later this year.

The Force Awakens, Briefly
Hasbro's revenue from its boys segment slows, raising worries over its Star Wars toys
Source: Bloomberg

The other potentially worrying sign: The company's inventories rose 42 percent in the quarter from a year ago. Hasbro executives on Monday downplayed fears the buildup was a result of kids not buying its stuff, saying it instead reflected its efforts to bulk up to fulfill expected demand. 

Stocking Up In The Toy Aisle
Hasbro's inventories rose 42% from the year before
Source: Bloomberg

Wall Street analysts have been generally bullish on Hasbro, pushing price targets up 50 percent in the past two years. During that time, Hasbro's stock rose 60 percent. Before Monday's drop, it had gained 27 percent year-to-date. Now, however, 11 of the 14 analysts followed by Bloomberg rate the company a "hold." The other three have a "sell" rating.

Playtime
Wall Street bets Hasbro's shares will rise, despite a falling stock price
Source: Bloomberg

Hasbro is now trading at around 19 times forward earnings, well above an average multiple of 15.5 over the past five years. Mattel is also trading around 20 times forward earnings, but its shares have been buoyed by a new CEO whose turnaround plan has already started to lift sales.

Hasbro's valuation suggests its stock has already priced in the success of its newly-acquired Disney Princesses business, as well as the benefits of its Star Wars sales surge.

Licensed products represent the bulk of Hasbro's growth; sales of legacy brands such as Monopoly and Play-Doh have slowed in the past few years. Because of its reliance on licensed brands, the company's stock has a history of outperforming competitors -- and the market -- during the year before the release of toy-generating blockbuster films. The stock then underperforms the S&P 500 by an average of 12 percent in the year of the film release, according to research from Jefferies analyst Trevor Young going back to 2003.

In other words, Hasbro investors have played this game before: Unless the company launches a new toy franchise, merges with another company, or wildly beats earnings expectations, expect its stock to stay in time out.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Shelly Banjo in New York at sbanjo@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net