Playtime's over - closing out Hasbro trade
Closing a successful trade: 31% in 4 months
Last week I closed out my Hasbro trade. The position is up 31% since I opened it in March and it’s time to call it a day.
As I wrote when I opened the trade, I think Hasbro is in the midst of a successful turnaround. They’ll have a good 2025 and should raise guidance next quarter. However, when I put this trade on it was with a clear upside target of 30%, with a $70 to $72 price target. It reached and blew through that level last week, and despite the improved fundamentals, it’s time to call it a day.
Hasbro has upside potential in the future, but this isn't a core position in my portfolio due to the expected return profile and dynamics of Hasbro and the toy industry in general. While I decided to extend this trade a few weeks ago my price target has since been met and the tariff discussion is back on the table skewing the risk / reward back against the name.
Where could I be wrong?
I could be wrong in thinking that Hasbro should be a more core position for the next 12 to 18 months as it executes its turnaround and continues to grow. Companies in turnaround mode can often outgrow their respective industry. Hasbro has a lot of earnings leverage as it increases its operational leverage and improves its bottom line, returning to growth. It has increased its EPS despite having no growth in its toy segment for the past two years. As this trend reverses, they should finally be able to grow margins. That's a distinct possibility that I'm missing out on. Hasbro has the ability to beat its estimates this year as magic is going to be in for a blockbuster year, and 2026 is going to be a good year for Disney. All of these factors could contribute to a good year and the stock regaining its historical trading levels.
Additionally, on my cost of capital, I'm giving up on 5% in a dividend which could add to returns.
Hasbro is a name I’ll keep monitoring, mainly because I love the industries they’re in and curious to see how they manage the brands WotC owns, but for now, I’ll take my money and run.