You’re probably familiar with Mattel (MAT), one of the biggest toy makers in the world. It’s the company behind iconic brands like Barbie, Fisher-Price, and Hot Wheels, notes Frank Curzio, growth stock specialist and editor of Curzio Venture Opportunities.

It also has licenses to make toys for massive franchises like Toy Story, Jurassic World, WWE, DC Comics, Harry Potter, and even Minecraft.

Like most toy companies, Mattel was devastated when Toys“R”Us filed for bankruptcy in 2018. It had been the biggest retailer in the industry — which means it was the biggest customer for companies like Mattel and Hasbro (HAS).

Mattel’s sales tanked in 2017–2018, sending earnings deep into the red. But it’s had a few years to get its feet back under it… trimming costs and focusing on growing sales of top brands like Barbie and Hot Wheels. Today, Mattel is in great shape — but most folks still haven’t noticed.

I love investing in situations like this. When a company runs into trouble, investors often throw in the towel, which is understandable. And if it takes a few years for the company to recover, most folks aren’t paying attention at all — or won’t consider buying the stock until the recovery is complete.

I got excited after seeing Mattel’s latest results. The company beat analyst estimates for both sales and earnings. The results were decent — sales grew by 8% — while profits increased by just a couple of percent. However, management raised its full-year guidance for sales and earnings, both of which should grow by 15%-plus this year.

That might sound like a big deal, until you consider that if Mattel meets its guidance numbers (highly likely, based on management’s conservative track record), it will be Mattel’s highest growth rate in decades. The recent results also show the company is successfully handling inflation by raising prices to make up for cost increases. Plus, it’s doing better than most competitors when it comes to supply chain problems.

Looking ahead, Mattel should easily generate more than $1 billion in EBITDA (earnings before interest, taxes, depreciation, and amortization) next year. That’s an important detail, because it will push down the company’s leverage ratio (a measure of its total debt vs. EBITDA).

Management has done a great job reducing debt while also growing profits. As a result, Mattel’s leverage ratio is down to 2.8 from over five a year ago. Once this number gets below 2.5, there’s a good chance Mattel’s debt rating will likely get upgraded early in 2022. This would be huge, since a higher rating translates to lower interest expenses and more flexibility to pay dividends or do share repurchases.

It’s also worth noting that shares of Mattel trade around 17x forward earnings estimates. That’s well below the market average despite the fact it’s growing profits faster than most companies. The company is on track to grow earnings per share (EPS) by 100% this year — and another 26% next year.

Mattel’s stock is a no-brainer at current levels, especially after the latest earnings report. The shares could easily soar above the $45 level over the next year (or less), as the company blows away the market’s low expectations and investors realize its growth profile. 

Action to take: Buy Mattel under $22. Use a 35% hard stop from your cost basis.

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