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Bear of the Day: Funko (FNKO)

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Funko, Inc. FNKO has fallen to a Zacks Rank #5 (Strong Sell) despite analysts expecting the company to see big earnings growth this year and next.  

Funko makes pop culture consumer products, including vinyl figures, action toys, plush, apparel, housewares and accessories for consumers who have favorite pop culture brands and characters. This includes movie, television and book characters, and sports figures, including popular coaches.

Another Beat in the Third Quarter

On Oct 31, Funko reported its third quarter results and beat for the fourth quarter in a row. Earnings were $0.38 versus the Zacks Consensus of $0.31. It beat by 22.6%.

Net sales rose 26% to $223.3 million from $176.9 million in the third quarter of 2018, driven by strong sales demand in the United States and Europe.

Funko had 627 active properties in the third quarter, up 13% from 553 in the third quarter of 2018.

Sales in the US were up 21% to $147.3 million while international sales jumped 37% to $76 million, fueled by growth in Europe.

Figures continued to drive the business, with sales up 24% to $176.5 million but its other product lines including games also saw double digit growth in the quarter, up 33% to $46.8 million.

Reaffirmed Full Year Guidance

Funko reaffirmed its full year guidance, even after spending more on SG&A in the third quarter, thanks to continued expansion of the company's office, retail and warehouses.

It saw earnings in the range of $1.15 to $1.22 a share while sales are expected to be between $840 million to $850 million.

Why Is It a Zacks #5 (Strong Sell)?

One analyst lowered his estimate for 2019 and 2020 in the last 2 months and that appears to be enough to send the Rank down to (Strong Sell).

The 2019 Zacks Consensus has been sitting at $1.21 for the past 3 months. That is within the company's guidance range.

The 2020 Zacks Consensus Estimate has fallen to $1.40 from $1.42 within that same time. It's still earnings growth of 16% over 2019.

Remember, the Zacks Rank is a short-term recommendation of just 1 to 3 months. It can change daily, depending on analyst changes to estimates.

Funko will report fourth quarter results in February. The Rank will likely change at that time as analysts get guidance on 2020.

Shares Are Still Cheap

It's been a volatile 2-year ride for the shares with big highs, and then sharp pullbacks.

Over the last year, Funko shares are up just 5.5%.

But is this a buying opportunity?

The company trades with a forward P/E of just 11.8.

And given its growth projections, it has a PEG ratio of only 0.6. A PEG ratio under 1.0 means it's a rare growth and value stock.

Also, Funko is one of the few companies that will be coming out with Baby Yoda toy. Pre-ordering is now available for the figure which apparently will be available in May.

Disney (DIS - Free Report) apparently didn't pre-make the Baby Yoda toys because it didn't want any leaks about the character before The Mandalorian show launched on Disney+.

Will Baby Yoda be a big earnings driver in 2020?

[In full disclosure, the author of this article owns shares of FNKO in her personal portfolio.]

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