Shares of Mattel (NASDAQ: MAT) jumped on Monday after an analyst reiterated his buy rating on the stock. This comes a few days after Mattel announced its first-quarter report , which featured double-digit sales growth for both Barbie and Hot Wheels. As of 11:25 a.m. EDT, the toymaker's shares were up 4%.
Analyst Gerrick Johnson of BMO Capital maintained his buy rating on Mattel stock, along with a price target of $20. Shares of Mattel haven't breached the $20 mark since mid-2017.
A Mattel Hot Wheels set. Image source: Mattel.
Shares of Mattel have tumbled over the past five years as the company struggled with slumping sales and profits. Mattel's first-quarter report was mixed: Revenue fell less than expected, but the bottom line came in well below the average analyst estimate. A 24% surge in Barbie sales and a 15% increase in Hot Wheels sales helped offset weak demand for Mattel's other brands. Excluding the impact of the Toys R Us bankruptcy, Mattel saw its first-quarter global gross sales grow by 2% year over year.
One reason for the buy rating may be Mattel's valuation. While the company is currently unprofitable, the stock's price-to-sales ratio is near its lowest level since the financial crisis nearly a decade ago. There are few things going right for Mattel at this point, but expectations are rock-bottom.
Mattel has a lot of work to do under new CEO Ynon Kreiz. The Toys R Us bankruptcy will hurt sales in the near term, as the retailer was one of Mattel's top customers . Once that issue is in the rearview mirror, Mattel will still need to boost demand for many of its brands, including American Girl and Fisher-Price.
With expectations so low, a surge to $20 per share isn't out of the question. But to produce long-term results for shareholders, Mattel will need to get the bottom line back into positive territory.
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