When an industry is new, many companies will flourish. Over time, the market will determine the best winners in the space. It could come from a better product, a better brand, a better business model, or simply lower costs.
Over time, that leads to consolidation as weaker players go out of business and smaller players are bought out. Investors who buy ahead of an offer can make money on the company being acquired. But owning the industry leader over time can be lucrative as well.
One interesting industry consolidation trend underway right now is in the field of toys.
Hasbro (HAS) is going for the income of an older demographic with its acquisition of D&D Beyond. The company, which boasts nearly 10 million registered users, offers a digital toolkit for D&D players, and is being acquired for $146.3 million in cash.
Hasbro shares are down 17 percent in the past year. Earnings have dropped nearly 22 percent, even as revenue has increased 17 percent. Adding a company like D&D Beyond can increase cash flows, and offer more digital sales, as well as appeal to a broader demographic in the toys and gaming space that could lead to a rebound.
Action to take: Hasbro shares are fairly attractive at 15 times forward earnings here. And shares yield 3.3 percent at current prices.
For traders, shares are right at a one-year low. They may not trend higher yet, but the October $95 calls, going for about $3.35, could offer high double-digit gains on a rebound in shares.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.
