What happened

Shares of Hasbro (NASDAQ: A) were trading up 2.9% at 1:11 p.m. ET on Thursday following news that an activist investor was urging the toymaker to change its trading strategy.

Alta Fox Capital Management is a major shareholder in Hasbro. It owns about 2.5% of the outstanding shares, worth about $340 million. Like a true activist investor, the company is using that leverage to push for two big changes to Hasbro’s business that it says could lead to a doubling of the current stock price.

Image source: Getty Images.

So what

In a letter to Hasbro, Alta Fox Capital Management explained why it invested in the toy company, but also pointed to flaws in the company’s strategy that prevent the market from attributing the stock a higher valuation. high.

Our in-depth analysis has determined that Hasbro has exceptional strengths, loyal customers, passionate employees and truly special brands. However, our analysis also led us to conclude that the company is heavily undervalued and perpetually underperforming due to its ineffective “Brand Blueprint” strategy, flawed corporate structure, and consistent misallocation of the capital.

Hasbro recently released a strong earnings report, with revenue and adjusted earnings per share increasing 17% and 41%, respectively, from 2020. Still, the stock hasn’t budged on the news. The stock is currently trading at a forward price-to-earnings ratio of 19.4, which is a discount to the S&P500 earnings multiple of the index of 22.4.

Now what

Alta Fox is proposing changes to Hasbro’s board of directors to better incentivize management to improve its capital allocation, corporate governance and investor communication. The company also wants Hasbro to spin off its fastest-growing segment, Wizards of the Coast, which saw 42% revenue growth last year.

In total, Alta Fox believes the moves would put Hasbro on a “clear path to at least $200 per share,” which is double the current share price.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.