Hasbro, Inc. (HAS), Mattel, Inc. (MAT): Should You Invest in Toys?

LeapFrog Enterprises, Inc. (NYSE:LF) is a much smaller business, with a market cap of around $750 million. It’s also a much different type of company, because it focuses on the educational game niche. The company offers several multimedia learning platforms, including LeapPad, LeapPad 2, LeapsterGS, LeapReader, and LeapReader Junior.

LeapFrog Enterprises, Inc. (NYSE:LF) is well known for its high-quality products. And after a very weak 2008 and 2009, it looks as though a successful turnaround has taken place. Revenue and earnings have consistently improved, in fact sales increased 16% in the second quarter. LeapFrog Enterprises, Inc. (NYSE:LF) has no long-term debt to speak of, its net margin is an impressive 16.19%, and the stock is only trading at around 8 times earnings.

However, nearly 25% of the float is short. Shorts might be aware of LeapFrog Enterprises, Inc. (NYSE:LF)’s precipitous decline at the height of The Great Recession, when the stock dropped more than 80%. If the market falters, LeapFrog isn’t likely to hold up well and the shorts want to target companies that are likely to suffer the most. LeapFrog Enterprises, Inc. (NYSE:LF) has also had difficulty delivering profits over the past year, which could signal trouble.

LeapFrog Enterprises, Inc. (NYSE:LF) has targeted a niche, but there is a low barrier to entry for this industry. Competition from larger players could increase at any time, and while it sells quality products, downside risk is high.

Conclusion

Hasbro and Mattel, Inc. (NASDAQ:MAT) have taken different approaches to growing their businesses, but over the long haul, they have largely traded together. Mattel has the lead now, but Hasbro has made several highly strategic decisions that should lead to market share gains.

Both stocks are somewhat resilient to broader market corrections, but since both companies are likely to be long-term winners, any downswings could prove to be opportunities. That said, Hasbro might see more organic growth than Mattel over the next decade, so perhaps your research should start there.

The article Should You Invest in Toys? originally appeared on Fool.com and is written by Dan Moskowitz.

Dan Moskowitz has no position in any stocks mentioned. The Motley Fool recommends Hasbro, LeapFrog Enterprises (NYSE:LF), and Mattel. The Motley Fool owns shares of Hasbro and LeapFrog Enterprises. Dan is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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