One of Wall Street's biggest winners of the day is Mattel, a toy company whose shares have climbed 4.2% to a price of $21.78 -- 30.86% below its average analyst target price of $31.5. The average analyst rating for the stock is buy. MAT outperformed the S&P 500 index by 3.4% as of today's aftermarket session, and by 15.1% over the last year with a return of 4.0%.
The P/E ratio is the company's share price divided by its earnings per share. In other words, it represents how much investors are willing to spend for each dollar of the company's earnings (revenues minus the cost of goods sold, taxes, and overhead). As of the third quarter of 2022, the consumer cyclical sector has an average P/E ratio of 24.11, and the average for the S&P 500 is 15.97.
Mattel 's trailing 12 month P/E ratio is 7.4, based on its trailing Eps of $2.94. The company has a forward P/E ratio of 11.2 according to its forward Eps of $1.95 -- which is an estimate of what its earnings will look like in the next quarter.
In contrast to earnings, gross profit margins are the company's revenue minus the cost of goods only, and don't take into account taxes and overhead. Analyzing gross profit margins as opposed to net (operating) margins gives a better picture of the company's pure profit potential and pricing power in its market, unclouded by other factors. As such, it can provide insights into the company's competitive advantages -- or lack thereof. MAT has gross profit margins of 47.4%, which indicates that it potentially benefits from a sustained competitive advantage over its peers, allowing it to maintain highly profitable pricing structures.
The revenues and earnings related to sales are only a part of the financial puzzle of large corporations, which have many costs and expenses arising independently from their core business: the cost of maintaining debt, rent payments, return on capital investments, depreciation, etc. When all of these separate cash flows are taken into account, we are left with the company's levered free cash flow, which for Mattel is $6.641,125. This represents the amount of money that is available for reinvesting in the business, or paying out to investors in the form of a dividend. With a positive cash flow, MAT is in a position to do either -- which can encourage more investors to place their capital in the company.
Another valuation metric for analyzing a stock is its Price to Book (P/B) Ratio, which consists in its share price divided by its book value per share. The book value refers to the present liquidation value of the company, as if it sold all of its assets and paid off all debts. Mattel 's P/B ratio indicates that the market value of the company exceeds its book value by a factor of 4, so the company's assets may be overvalued compared to the average P/B ratio of the Consumer Cyclical sector, which stands at 3.11 as of the second quarter of 2022.
In conclusion, we believe that as of the third quarter of 2022, Mattel is likely fairly valued. It has a very low P/E ratio, decent cash flow, and great margins, but an elevated P/B ratio. We hope this preliminary analysis will encourage you to do your own research into MAT's fundamental values -- especially their trends over time.
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