Why Funko Stock Popped 15% More Today

What happened

Funko (NASDAQ:FNKO) stock is red hot, rising 15.7% as of 10:35 a.m. EDT Thursday — and you can thank Bank of America for that.

Early this morning, the investment bank announced it is reversing its opinion of Funko, and reversing its underperform rating on the stock, replacing it with a buy instead — with a $30 price target that implies the shares could soar another 24% from today’s prices.

A green arrow rises against a stock chart.

Image source: Getty Images.

So what

Shares of the pop-culture toymaker exploded 17.5% higher last week after blasting through Wall Street’s earnings predictions to earn $0.17 per share for its fiscal first quarter (and $0.24 per share pro forma). It didn’t take long for investors to suffer buyer’s remorse, however, and by yesterday’s closing trade, Funko had given back all those gains, and was once again trading at its pre-earnings price.

Bad news? Maybe, but on the plus side, Funko’s relapsing stock price has given investors a second bite at the apple, and this morning, Bank of America snapped it up. Upgrading Funko stock to buy, BofA predicted Funko will earn $1.30 per share next year (up from a prediction of $1 previously). Moreover, BofA sees Funko stock growing so strongly (reports StreetInsider.com), that it now thinks you can safely pay 23 times those earnings to own the shares — instead of the just 12 times earnings it previously thought Funko was worth.

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Now what

Funko’s core “Pop!” business performed strongly during the pandemic, and sales jumped 33% year over year in Q1, notes Bank of America. But Funko today is about more than just Pop!. The company has a revenue mix that includes nonfungible tokens, games, and toys, even as the company leveraged the new pandemic economy to grow its direct-to-consumer business. Today, Funko is growing like a weed — yet at a valuation of less than 19 times forward earnings, Funko stock costs less than half the average P/E valuation on the S&P 500.

Bank of America thinks you should buy it, and I kind of think they might be right.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

View more information: https://www.fool.com/investing/2021/05/13/why-funko-stock-popped-15-more-today/

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