No wonder investors are trying to invest in Lego stock after Lego collectors achieved great returns collecting Lego sets. In fact, they were even superior to some large-cap stocks, bonds, and gold, during 1987 and 2015. Lego is a Danish iconic brand.
Its products inspire not only the young but also grown-ups who compulsively collect all of their products and showcase them proudly. We’ll look at some of the important factors that have helped Lego create an iconic brand that is instantly recognized across generations.
History of Lego
LEGO was founded by Ole Kirk Christiansen. A carpenter by trade, Ole Kirk Christiansen found himself out of work following the Great Depression of the 1930s. He produced household wooden goods, and following the Great Depression the demand for these products slowed down considerably. With a lot of free time, and without being able to do what he has always done, Ole started considering other options.
He found that some of the wooden toys he built were highly regarded by customers and children alike. Even in bad times children always needed toys, and this was a pivotal moment for Ole, who decided to rebrand his business and focus on building toys.
It wasn't until 1947 that Lego started creating building blocks that could be interconnected. Oil was rationed during the second world war, due to its importance to the war effort. This is the main reason why plastic was not widely used until the end of the war. It marketed the product as “automatic binding bricks”, eventually taking the name LEGO.
Lego has become a worldwide brand, recognized by millions. It owns over 165 retail stores across the world, amusement parks, and the commercial rights for its brand that have been used in games, movies, and all sorts of merchandise. It has also successfully franchised some of its stores, and there are currently over 385 franchised retail stores.
In 2020, Lego was valued at around $7.54 billion. However, if the company was to go public, the market cap of a Lego stock could be much higher. As investors would clearly recognize the intangible value associated with such an iconic brand.
Who owns Lego?
Lego is a privately held company, which is owned by Kirkbi A/S, which has a 75% stake, and the Lego Foundation that owns the remaining 25%. Kirkbi A/S is owned by the Kirk Christiansen family.
The descendants of its founder Ole Kirk Christiansen own the company, and therefore it is unlikely that we could see a Lego stock IPO in the near future. They are also involved with the Lego Foundation, and therefore those two entities will remain in control of the company.
Will investors ever be able to invest in Lego stock?
Although it is difficult to say, there is a possibility that one day we could see a Lego stock IPO. However, it is entirely dependent on Kirk Christiansen. If some of the family members wish to bring in additional investors, we might see a Lego stock, as they take the company public.
It does not seem, however, that this is likely to happen in the near future. Lego has everything going for them. A huge brand, with lots of awareness, and a legion of fans willing to buy and collect their products. The company can easily raise capital if it needs through debt issuance.
Why we could see a Lego stock IPO in the future
Demand for toys is, unfortunately, slowing down. As kids are much more interested in playing video games. The toy industry is slowly shrinking in size. Creating challenges for every company in the industry. Lego is no exception. Despite their customer loyalty and thousands of Lego collectors around the world, the company has been experiencing lower revenues. In 2017, it was forced to fire 1,400 of its employees, as it tries to cut costs and remain competitive.
If toy demand continues to slow down, we could see a situation where Lego might be forced to go public, to raise capital. As lenders will probably demand higher interest on the debt, given the slowing industry it is in. This is one of the reasons that lead us to believe that we could see a Lego stock IPO in this decade.
However, this does not seem to be a possible scenario in the short term.
The pandemic has negatively affected many industries and sectors. However, it has also had a particularly positive impact in some industries, namely toys. With so many people working from home, and unable to leave their kids at daycare, toy sales have surged. Lego has benefited tremendously from the pandemic, doubling its profits in 2020.
Investing in Lego collectibles
Well, since we cannot invest in Lego stock, we can find the next best thing - Lego collectibles. There are thousands of Lego collectors around the world, who try to get their hands on as many Lego sets as they can. Surprisingly this has proved to be one of the best investments, collectors, and investors can make. Some Lego sets have tremendously increased in value, and remain highly sought after.
There is no doubt that collectibles, in general, tend to be good investments. However, they do not generate any cash flow, and some collectibles can be highly illiquid. This means that it might be difficult to sell them fast.