"We believe the 2013 holiday season is shaping up to be a challenging one for the toy industry," Needham analyst Sean McGowan wrote in a recent note.
McGowan still recommends that investors buy both Mattel and Hasbro, due to his expectation that investors "are going to look past this year" and focus on 2014 and 2015. But he presents five compelling reasons why this holiday shopping season won't exactly bring comfort and joy to toy company investors.
Reason one: The consumer is not in great shape
"There's a lot of pessimism about how the consumer is acting for certain segments," McGowen told CNBC.com. For instance, he notes that while demand for homes has been very strong, demand for other items is understood to be much weaker.
There is certainly the data to back up this widely held belief. According to the U.S. Department of Commerce's most recent reading, real (or inflation-adjusted) disposable personal income was a meager 1.6 percent higher in August than it was a year prior. Compare that the S&P 500, which rose 23 percent from August 2012 to August 2013.
Investors, then, worry about the "skittishness of consumers," as McGowan puts it. And if consumers are skittish, that could easily translate into smaller gifts under the tree.
(Read more: 'Horrendous' holiday ahead for retailers: Pro)
Reason two: "Birth dearth"
Demographic trends are working against toy companies, McGowen says. The analyst notes that the recent peak in U.S. births came in 2007, so that 8 percent fewer babies were born in 2012 than in 2007 — a trend he refers to as "birth dearth."
"Obviously a reduction in the number of babies reduces primary demand for products that would be purchased for babies and, in later years for toddlers, preschoolers and young children," McGowen said.
That said, McGowen added that U.S. births "appear to be on the rise this year."