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Why Mattel Stock Dropped 10% (More) This Morning

What happened

Shareholders of toy maker Mattel (NASDAQ: MAT) woke up on the wrong side of the Dream House this morning, seeing their stock's price fall nearly 10% in early Tuesday trading after an analyst at investment banker DA Davidson cut the price target on Mattel stock.

Shares of Mattel have recovered some of their losses, but remain down 3.3% as of 12:35 p.m. EST.

Red arrow crashing into and cracking floor.
Red arrow crashing into and cracking floor.

Image source: Getty Images.

So what

Mattel's fall was almost certainly caused by DA Davidson's price target cut. Until this morning, Davidson had held out hopes Mattel would eke out at least a 5% gain to $14 a share this year. Now, however, the analyst says it thinks Mattel shares are worth just $12.25 at best, according to an update on StreetInsider.com.

(On the plus side, at least Davidson left its rating of Mattel stock unchanged at "neutral." Since the analyst's new price target represents an 8% decline from today's prices, Davidson could just as easily have downgraded the stock).

Now what

Will Mattel shares fall as much as Davidson is predicting? They very well might.

Mattel stock suffered a steep 18% slide on Friday, after the company guided investors to expect a decline in sales in the first quarter of 2019. Investors ordinarily prefer to own stocks that are growing sales and profits, not shrinking them. And with Mattel currently burning cash and reporting losses (for two years in a row, mind you), there's not a lot to like about Mattel's recent accomplishments, to offset the grim prospects for shrinking sales it announced last week.

Mattel's 10% decline earlier in the day could be just the beginning for another bad week for the company.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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