Investment firm Dodge & Cox disclosed earlier this week it reduced its stake in Mattel Inc. (MAT, Financial) by 11.65%.
Founded in 1930, the San Francisco-based investment firm takes a classic long-term value approach, steering clear of popular companies that trade at premium prices. Rather, it conducts in-depth research into companies trading at low valuations that have promising earnings and cash flow growth prospects.
According to GuruFocus Real-Time Picks, a Premium feature, the firm sold 2.7 million shares of the El Segundo, California-based company on Aug. 31, which had an impact of -0.03% on the equity portfolio. The stock traded for an average price of $10.75 per share on the day of the transaction.
Dodge & Cox now holds a total of 20.6 million shares, which represent 0.2% of the total assets managed. GuruFocus estimates the firm has lost 25.36% on the investment since establishing it in the fourth quarter of 2017.
The toy company, which is known for iconic brands like Barbie, Fisher-Price, Hot Wheels and American Girl, has a $3.81 billion market cap; its shares were trading around $10.97 on Thursday with a price-book ratio of 44.23 and a price-sales ratio of 0.89.
The median price-sales chart shows the stock is trading below its historical average, suggesting it is undervalued. The GuruFocus valuation rank of 7 out of 10 supports this assessment even though the price-book ratio is nearing a 10-year high.
On July 23, the company reported its second-quarter financial results. Posting an adjusted loss of 26 cents per share on $732 million in revenue, Mattel topped Refinitiv's estimates of a loss of 34 cents per share on $679 million in revenue. Net toy sales declined 15% year over year.
In a statement, Chairman and CEO Ynon Kreiz lauded the company's performance in the face of store closures related to the Cov-19 pandemic, saying it "demonstrated our execution capabilities and the resilience of our brands."
"While revenues were down, they exceeded our expectations, particularly in North America, Barbie, and Games, where we saw sales increases," he said. "Total company POS improved significantly and was positive in the quarter, and e-commerce continued to grow strongly in all regions."
GuruFocus rated Mattel's financial strength 3 out of 10. As a result of issuing approximately $583.9 million in new long-term debt over the past three years, the company has weak interest coverage. The low Altman Z-Score of 1.8 also warns the company could be in danger of going bankrupt. The return on invested capital is also eclipsed by the weighted average cost of capital, which indicates the toymaker is destroying value since its projects are returning less than it costs to fund them.
The company's profitability fared a bit better, scoring a 6 out of 10 rating, despite having margins and returns that underperform over half of its competitors. Mattel is also supported by a moderate Piotroski F-Score of 5, which suggests operations are stable. The predictability rank of 3.5 out of five stars, however, is on watch as a result of recording a loss in operating income and declining revenue per share over the past several years. GuruFocus data shows companies with this rank typically return, on average, 9.3% annually over a 10-year period.
Of the gurus invested in Mattel, PRIMECAP Management (Trades, Portfolio) has the largest stake with 14.05% of outstanding shares. Mason Hawkins (Trades, Portfolio), John Rogers (Trades, Portfolio), the T Rowe Price Equity Income Fund (Trades, Portfolio), Lee Ainslie (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio) and Mario Gabelli (Trades, Portfolio) also have positions in the stock.
Portfolio composition and performance
Dodge & Cox's $108.73 billion equity portfolio was composed of 191 stocks as of the end of the second quarter. The financial services sector had the largest representation at 24.19%, followed by the technology (18.91%) and health care (15.55%) spaces.
One other stock in the travel and leisure industry the firm held as of June 30 was Booking Holdings Inc. (BKNG, Financial).
Dodge & Cox said in its semiannual letter that it returned -15% for the first half of 2020, underperforming the S&P 500's -3.1% return.
Disclosure: No positions.
Read more here:
- Tiffany Shares Lose Their Sparkle as LVMH Pulls the Plug on $16.2 Billion Deal
- Stanley Druckenmiller Says Market Is in 'Absolute Raging Mania'
- Warren Buffett Continues to Cash Out of Wells Fargo
Not a Premium Member of GuruFocus? Sign up for a free 7-day trial here.
