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This is Why Traders are Shorting Mattel

It’s no secret that video games and digital content proliferation is killing the toy business. But the industry has been suffering from declining sales for years, with some companies struggling to attract new customers as big retailers like Toys R Us go out of business. Then there’s Mattel and its long history of share buybacks, which have put the company in a specially precarious situation (read THIS). How precarious? Last year Mattel’s credit rating was downgraded to junk. That’s a big problem for a capital-intensive business with too much debt on its books.

Hiring a former Google executive didn’t help matters either. That’s because no cost-cutting strategy was going to fix a sinking business. Brands like Barbie, American Girl and Hot Wheels are stale and outdated. Add this latest PR nightmare to the mix and you have one more reason not to buy this stock. Thirty infants died because Mattel allegedly took too long to recall its Fisher-Price Rock ‘n Play sleeper. It doesn’t get more negligent than this. Toy companies are supposed to care for the safety of their customers, specially small children, and Mattel failed.

For years Mattel executives were more interested in propping up the stock with buy bucks than making sure the company innovated its way out of mediocrity. There’s really no compelling reason to want to own this stock, even at this “bargain” levels. Where is growth going to come from? And what do you think it’s going to happen to Mattel now that its facing a number of costly lawsuits? Short sellers already seem to know the answer.

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