Hasbro has been on fire lately. In the past six months alone, the company’s stock price has rocketed 47.4%, reaching $75.15 per share. This was partly thanks to its solid quarterly results, and the performance may have investors wondering how to approach the situation.

Is there a buying opportunity in Hasbro, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free for active Edge members.

Why Do We Think Hasbro Will Underperform?

Despite the momentum, we're swiping left on Hasbro for now. Here are three reasons there are better opportunities than HAS and a stock we'd rather own.

1. Revenue Spiraling Downwards

A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Hasbro struggled to consistently generate demand over the last five years as its sales dropped at a 3.1% annual rate. This was below our standards and signals it’s a low quality business.

2. Operating Losses Sound the Alarms

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Hasbro’s operating margin has risen over the last 12 months, but it still averaged negative 14.8% over the last two years. This is due to its large expense base and inefficient cost structure.

3. New Investments Fail to Bear Fruit as ROIC Declines

A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared to the money it has raised (debt and equity).

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Hasbro’s ROIC has decreased significantly over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Final Judgment

We see the value of companies helping consumers, but in the case of Hasbro, we’re out. After the recent rally, the stock trades at 15.3× forward P/E (or $75.15 per share). This valuation is reasonable, but the company’s shaky fundamentals present too much downside risk. There are superior stocks to buy right now. We’d recommend looking at the most entrenched endpoint security platform on the market.

Stocks We Like More Than Hasbro

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