Why Mattel Stock Slumped Today

What happened

Shares of Mattel (NASDAQ: MAT) dropped on Tuesday after the toy maker was downgraded by UBS. Fears of a full-blown trade war could also be playing a role. Mattel stock was down about 5.3% at 12:35 p.m. EDT.

So what

UBS downgraded shares of Mattel on Tuesday to neutral, replacing a previous buy rating. UBS kept its price target at $17 per share, so the downgrade appears to be due to Mattel’s rally over the past few months. Prior to Tuesday’s slump, Mattel stock was up nearly 30% over the past three months.

Image source: Getty Images.

Also in the mix is the escalating trade situation between the United States and China. President Trump threatened to slap tariffs on an additional $200 billion of Chinese goods, a move that will almost certainly be met with some form of retaliation. Mattel has manufacturing facilities in China, and sales in the Asia-Pacific region totaled $547 million in 2017, about 11% of the company’s total revenue.

Now what

The double-digit gains for Mattel stock over the past few months have not been related to the company’s performance. During the first quarter, global net sales dropped 4% year over year, while adjusted operating loss expanded to $160.5 million. That’s down from a loss of $120.7 million during the prior-year period, even after excluding the negative impact of the Toys “R” Us bankruptcy and other one-time items.

Mattel’s recent strong performance seems to be a case of the stock bouncing off lows not seen since the financial crisis nearly a decade ago. For the stock to continue moving higher, the company needs to start showing signs of improvement.

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Timothy Green has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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