Funko, Inc. (NASDAQ:FNKO) shareholders that were waiting for something to happen have been dealt a blow with a 46% share price drop in the last month. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 74% loss during that time.
Since its price has dipped substantially, when close to half the companies operating in the United States' Leisure industry have price-to-sales ratios (or "P/S") above 1x, you may consider Funko as an enticing stock to check out with its 0.1x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.
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View our latest analysis for Funko
Recent times haven't been great for Funko as its revenue has been falling quicker than most other companies. The P/S ratio is probably low because investors think this poor revenue performance isn't going to improve at all. You'd much rather the company improve its revenue performance if you still believe in the business. Or at the very least, you'd be hoping the revenue slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Funko.There's an inherent assumption that a company should underperform the industry for P/S ratios like Funko's to be considered reasonable.
Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 9.1%. The last three years don't look nice either as the company has shrunk revenue by 21% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.
Looking ahead now, revenue is anticipated to climb by 1.2% during the coming year according to the dual analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 2.9%, which is not materially different.
With this in consideration, we find it intriguing that Funko's P/S is lagging behind its industry peers. It may be that most investors are not convinced the company can achieve future growth expectations.
Funko's recently weak share price has pulled its P/S back below other Leisure companies. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.
We've seen that Funko currently trades on a lower than expected P/S since its forecast growth is in line with the wider industry. When we see middle-of-the-road revenue growth like this, we assume it must be the potential risks that are what is placing pressure on the P/S ratio. It appears some are indeed anticipating revenue instability, because these conditions should normally provide more support to the share price.
We don't want to rain on the parade too much, but we did also find 2 warning signs for Funko (1 makes us a bit uncomfortable!) that you need to be mindful of.
If you're unsure about the strength of Funko's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
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