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Bull of the Day: Funko (FNKO)

Tracey Ryniec

Funko, Inc. (FNKO) has proven it's more than just Fortnite. This Zacks Rank #1 (Strong Buy) was considered a "fad" when it went IPO in 2017 but earnings are expected to jump more than 48% in 2019.

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.

Big EPS Beat in Q2

On Aug 8, Funko reported its second quarter results and blew by the Zacks Consensus Estimate by 92%. The company reported earnings of $0.25 versus the Zacks Consensus of $0.13.

Sales jumped 38% to $191.2 million while gross profit rose 35% to $71.2 million. Sales were driven by strong demand across all of its geographic markets and product categories.

The top product in the quarter was Avengers Endgame which was 6% of all sales.

Gross margin, however, fell 90 basis points to 37.2% due to higher reserves on inventory, partially offset by improved product cost margins and lower license and royalty costs as a percentage of net sales.

Raised Full Year Guidance

Another strong quarter meant the company raised full year guidance again, even in the face of the latest round of tariffs.

The company has moved 70% of production out of China but still has exposure to the latest tariffs. It believes it can raise prices to offset most of the pain, especially on its low cost products.

It now expects earnings per share to be in the range of $1.15 to $1.22 per share, which was above consensus.

Not surprisingly, the analysts all raised after the earnings report, with the 2019 Zacks Consensus Estimate jumping to $1.22 from $1.14. That's at the very top end of the company's guidance range.

That's earnings growth of 48.8% as Funko made $0.82 last year.

Analysts are also bullish on 2020 as 6 estimates have been raised for that year as well. The Zacks Consensus Estimate has jumped to $1.42 from $1.33 which is another 16.6% growth.

Growth or Value?

With that kind of earnings growth, you'd think Funko would be a growth stock.

Shares have rebounded from the 2018 and are up 73% year-to-date but they're down 5.1% in the last month.

The company trades with a PEG of 0.98 and a P/S ratio of just 0.9.

Both would indicate there's value in these shares.

For investors looking for a growth stock with value, Funko is one to keep on the short list.

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

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