When the Force Goes Back to Sleep By Brad Thomason, CPA
It annoys people when you point out things which are too obvious. And yet, it often has the effect of bringing into focus those things which we all know, but have a tendency to ignore as we roll through business as usual.
When a stock’s price goes up or down more than the market, it’s typically because of something going on that affects only that company.
Insightful, huh?
In the case of Hasbro that something has been the much-anticipated coming of the latest Star Wars movie. One of the quirkiest developments in the history of US business is the fact that the original movie made good money, but it was nothing compared to the toys that got sold as a result of it. I had some of the original action figures and even a couple of replica blasters from when the first movie came out. Had I not treated them the way that seven-year old boys treat their toys, they would probably be worth a good bit today if I still had them.
Star Wars ushered in a new age of special effects in movies. But more than that, it ushered in the golden age of merchandise. Cut to the present, much of that merchandise is made by Hasbro.
Oh, and they also made all of the toys for Jurassic World last spring. See, they have a big distribution contract with Disney.
The stock’s price went from the mid 50s at the beginning of the 2015, cresting in the mid 80s by July. It’s off of that some right now, but still rose about 25% for the year. That’s pretty good by most any sane person’s reckoning.
The price seems to be in a rebound for the moment, perhaps heading back up into the higher trading range. 2015’s price volatility was much higher than the recent past, so a carryover of the bouncing- around would not be surprising.
But if you go and buy shares of Hasbro now, hoping that it’s going to repeat the 2015 performance again this year, you may be disappointed. Why? Because the prospects for merchandise-rich movies coming down the pipe in the next few months doesn’t compare to what came last year. How could it? There’s not another Star Wars movie coming out; and even though other themes produce good toy sales, they are still mere wannabes compared to the granddaddy of them all.
The awakening of the Force is the force which drove Hasbro to new heights in 2015. When that force goes away – you know, as the Force goes back to sleep for a couple of years until the next installment – absent a replacement, the price of Hasbro is more likely to settle back to Earth than continue its climb. Something to keep in mind if you are shopping.
Both the leftover toys, and the company that made them, may be in the discount bin in the months to come.
The speculators may be able to keep it bouncing around for a while because volatility usually begets more volatility; at least in the short run. But as we get into the second half of 2016, if the revenues and profits aren’t there to keep the price inflated, it’s less like to stay inflated.
Tough comparisons could end up being a real…menace.