Even during a down period for the markets, Hasbro has gone against the grain, climbing to $67.01. Its shares have yielded a 6.3% return over the last six months, beating the S&P 500 by 7.3%. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is now the time to buy Hasbro, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Do We Think Hasbro Will Underperform?
Despite the momentum, we're cautious about Hasbro. Here are three reasons why HAS doesn't excite us and a stock we'd rather own.
1. Revenue Spiraling Downwards
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Hasbro struggled to consistently generate demand over the last five years as its sales dropped at a 3.5% annual rate. This wasn’t a great result and is a sign of poor business quality. 
2. Operating Losses Sound the Alarms
Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
Hasbro’s operating margin has risen over the last 12 months, but it still averaged negative 7.7% 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. Over the last few years, Hasbro’s ROIC has unfortunately decreased significantly. 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. With its shares outperforming the market lately, the stock trades at 15.7× forward P/E (or $67.01 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - you can find better investment opportunities elsewhere. Let us point you toward a dominant Aerospace business that has perfected its M&A strategy.
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