The stock price of Washington-based pop culture consumer products company Funko, Inc. (FNKO - Get Rating) leapt 46.7% over the past month after Company CEO Brian Mariotti announced the company’s plans to enter the non-fungible token (NFT) space. The stock has gained 80.5% over the past three months and 85.4% year-to-date.

With better-than-expected fourth quarter performance, an expanded presence among key retail partners, and robust fan engagement, it’s natural that FNKO’s move into the NFT market will bode well for the stock.

Amid  bullish investor sentiment, analysts have increased their estimates of the  stock’s earnings and revenue substantially.

Here are the factors that we think could help FNKO keep moving higher:

Hope and Hype Around NON-Fungible Tokens

The growing popularity of non-fungible tokens (NFT) have driven  outsized swings in the stocks of companies that are involved  in  NFT. The explosion of investor interest in  the blockchain technology-based digital asset happened after Christie’s auction of Beeple’s digital art for $69.3 million on March 11. According to a Reuters report, the monthly sales on NFT marketplace OpenSea hit an astonishing $95.2 million in February, up from $8 million in January.

FNKO’s CEO’s recent public statement, in an interview with Yahoo Finance about FNKO’s  plans to tie digital NFTs to the company’s fan base and link those to real physical products, caught investors’ the attention. The optimism surrounding the hype could cause FNKO’s  stock to soar further in the coming days.

Favorable Analyst Estimates

Analysts expect FNKO’s EPS to rise 350% in the current quarter, 156.8% in its fiscal year 2021, and 15.8% next year. Furthermore,  its EPS is expected to grow at a rate of 2.7% over the next five years. FNKO’s revenue is estimated to grow 31.3% in the current quarter, 28.6% in the current year, and 7.3% next year. Also, the stock beat the Street’s EPS estimates in each of the trailing four quarters.

Strong Financials

FNKO’s net sales increased 6.1% from their year-ago value to $226.5 million in the fourth quarter ended December 31. Also, the company’s adjusted ebitda  increased 29% year-over-year to $33.2 million. FNKO  reported a net income of $14.9 million and a net income margin of 6.6%, compared to a net loss of $6.3 million and net loss margin of 2.9% in the fourth quarter of 2019. Its  gross margin rose 800 basis points to 37.2% over this period.

The company’s revenue has grown at a CAGR of 19% over the past five years. Also, the CAGR of its EPS and total assets have been 35.2% and 6.6%, respectively, over the past three years.

POWR Ratings Reflect Solid Prospect

FNKO has an overall B rating, which equates to Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. Among these categories, FNKO has a B grade  for Momentum given the company’s impressive price performance year-to-date.

In terms of Growth Grade, FNKO has a B, which is in sync with the company’s impressive, expected revenue and earnings growth.

Also,  it has a B grade for Value. FNKO’s price-to-book ratio of 2.83x is 15.3% lower than the industry average  3.34x.

FNKO is currently ranked #3 of 25 stocks in the C-rated Entertainment – Toys & Video Games industry. In addition to the grades we’ve  highlighted, one  can check out FNKO’s POWR Ratings for Sentiment, Stability, and Quality here.

If you’re looking for other top-rated stocks in the Entertainment – Toys & Video Games industry, with an Overall POWR Rating of A or B, you can access them here.

Bottom Line

As digital assets increasingly register on mainstream awareness, FNKO’s plans to join the NFT race to try and link its physical products to  digital NFT could drive the stock  to fresh highs. Given the company’s strong direct-to-consumer platform, impressive financials, and expanding international footprint, it remains  on track to deliver solid top line growth and profitability this year. Thus, we think it may be the right time to invest in the stock.

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FNKO shares were trading at $19.18 per share on Thursday morning, down $0.06 (-0.31%). Year-to-date, FNKO has gained 84.78%, versus a 3.62% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...

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