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Oct 4, 2017

S3 Analytics: Is Mattel’s Stock Headed for the Island of Misfit Toys?

Short interest in shares of Mattel has more than doubled since the end of the Q2, even as the stock trades just off its 52 week lows.  Negative bets continue to rise, approaching 53 million shares sold short as of October 4th.  S3 Partners real-time short interest analytics calculates that the dollars at risk, on the short side, at $824 million.  Since June 30th (Q2), this is an increase of 103% on the shares and 48% of dollars at risk.

Despite the spike in short interest, S3 calculates that only 15.4% of the float is being utilized.  Should the negative headlines on the company persist, short sellers have plenty of additional stock available to sell.  Shares of Mattel trade at general collateral levels, the cheapest fee or easiest to borrow stock.  Bearish investors have been rewarded for their conviction over the past 3 months - S3 Partners calculates that they have made $196 million (a 29.9% return), which is a mark to market profit.

Three significant events over the past few years seem to be weighing on market optimism.  1) Mattel lost the rights to sell Disney branded princesses to Hasbro.  2) Mattel’s board of directors cut the quarterly dividend by 50%.  and most recently, 3) Toys R’Us filed for Chapter 11 bankruptcy.  Mattel investors are hoping for a turn-around.  The company has hired a new CEO, former Google executive Margo Georgiadis, who is aiming to transform the company into one that can thrive as the industry increasingly embraces technology.

Hasbro, Mattel’s main competitor, has seen its stock fall 16.3% recently, from its all-time closing high, which it hit this July.    Shorts have added 1.3 million shares (a 30.6% increase) and $64.3 million (14% increase) in dollars at risk over the same period.  Profitability on these trades is $55.3 million (11.9% return).

A substantial amount of revenue, for both companies, is earned during the 2nd half of the year leading into the holiday season.  With stock markets hitting all-time highs, increased bearish sentiment only adds to the fear that there will be coal in the stocking this year. 

Want deeper insight into the above analysis? Contact:
Director, S3 Partners
The information herein (some of which has been obtained from third party sources without verification) is believed by S3 Partners, LLC ('S3 Partners') to be reliable and accurate. Neither S3 Partners nor any of its affiliates makes any representation as to the accuracy or completeness of the information herein or accepts liability arising from its use. Prior to making any decisions based on the information herein, you should determine, without reliance upon S3 Partners, the economic risks and merits, as well as the legal, tax, accounting and investment consequences, of such decision.

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