Sit-Down Dining Is Out and Toys Are In

By TradeSmith Editorial Staff

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One of my favorite TradeSmith tools is our Screener, as it quickly separates investments that you shouldn’t touch with a 10-foot pole from true moneymaking opportunities.

In this brand-new issue of Red Light, Green Light, two such scenarios have recently unfolded from what I found in our Screener.

The first is with a sit-down dining conglomerate. As food prices remain elevated and people’s personal savings have started to evaporate, restaurants may be in for a tough road ahead. The first company I’m going to share recently entered our Red Zone — a warning sign to stay away.

On the flip side, despite people scrutinizing every purchase they make more closely, it appears that there is still room for entertainment in most budgets. And as toys go digital in 2023, one company has tapped into that trend – as well as another — better than its rivals.

That company entered our Green Zone — where a company is in a healthy and investable state — on June 20.

Let’s jump right in (percentages, stats, and other information are all as of this writing).

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Red Light: Dining Is Out

For a long time, the cost to prepare food at home was greater than the perceived cost to go out to eat.

Couple that setup with a consumer preference toward experiences, and you can feel the casual dining tailwinds at your back.

The problem is — that narrative has shifted.

According to a survey from consulting firm AlixPartners, 74% of respondents said at the end of 2022 that they planned to dine out less.

And as you can see in the chart below from our friends at LikeFolio, mentions of going out to a restaurant to eat have slipped by 19% year-over-year (YoY) after showing resilience in 2022:

For Dine Brands Global Inc. (DIN), that’s bad news.

It’s the operator of Applebee’s Bar & Grill and the International House of Pancakes (IHOP) brands, and its earnings report from the first quarter wasn’t inspiring.

The company reported $214 million in revenue, a year-over-year (YoY) decline of 6.9% from $230 million.

Until prices come down or restaurants can offer more innovative menus and experiences, DIN could be in trouble.

Within our system, DIN was stopped out on June 26 and is in our Red Zone.

Here is additional information to consider:

🤔 The risk level for DIN is considered “high.”

🤔 Its Business Quality Score of 73 is above average.

🤔 Insider Sentiment is considered “Neutral,” with a lack of executives recently buying or selling the stock.

🤔 DIN pays a dividend, which has a yield of 3.5%.

Now, let’s take a look at a potential profit opportunity.

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Green Light: Toys Are In

Our friends at LikeFolio say that companies like Hasbro Inc. (HAS) that are rolling out electronic games — and digital versions of classics — are winning.

For example:

  • An app version of “Magic: The Gathering” recently became Hasbro’s first billion-dollar brand.
  • And a digital take on the hugely popular “Dungeons & Dragons” role-playing game is now garnering buzz on social media.
Together, these brands ignited 12% growth in digital gaming sales in Hasbro’s first quarter — offsetting an inventory glut of traditional toys. And upcoming innovations like a D&D virtual tabletop will continue to capture players’ hearts — and wallets.

LikeFolio also talks about “Kidults” as a catalyst for more sales — grownups whose tastes in current entertainment or media are more suitable to kids.

It’s a trend.

And it’s big.

Really big.

Thanks to these rejuvenated commitments to nostalgic pop culture, the collectible slice of the toy market has exploded: It was worth $426 billion last year, says researcher Market Decipher. And that’s expanding the opportunity set for toy manufacturers like Hasbro.

Just look at the data:

Nostalgic action figures and games tied to hit movies and TV shows are blurring the line between pop culture and toys — and have become an especially hot ticket item for adult consumers.

Our friends at LikeFolio have a free research report that offers an even deeper dive into Hasbro, which you can access here.

Within our system, HAS triggered an Entry Signal on June 20 and is in our Green Zone.

Here is additional information to consider:

🤔 The risk level for HAS is considered “medium.”

🤔 Its Business Quality Score of 34 is low.

🤔 Insider Sentiment is considered “Neutral,” with a lack of executives recently buying or selling the stock.

🤔 HAS pays a dividend, which currently has a yield of 4.5%.

Bottom line: Trying to pass on elevated food costs is going to get tough for restaurants, and Dine Brands looks to be in a tough environment for the foreseeable future. In comparison, Hasbro is seeing renewed enthusiasm around its toys and is tapping into emerging trends and opportunities better than its rivals.