What happened

Shares of Funko (NASDAQ:FNKO) were surging today after the maker of Pop! figurines and other toys got an upgrade from Piper Sandler this morning, which comes just a day after another analyst downgraded the stock.

As of 2:14 p.m. EST, shares of the toymaker had gained 27.2%.

A Funko Pop! Top Cat.

Image source: Funko.

So what

Piper Sandler analyst Erinn Murphy lifted her rating on the stock from neutral to overweight after meeting with management. She also raised her price target from $6 to $12. With the stock price now down 38% year to date, Murphy sees upside potential coming out of the fourth quarter as she expects U.S. sales to be up modestly in the key holiday period. The company faces stiffer headwinds in Europe where stores have been closed due to a surge in coronavirus cases.

The gains follow a sell-off in the stock yesterday after BMO Capital Markets lowered its rating to underperform, noting that its Pop! dolls are losing some of their appeal, implying the trend may be on the decline.

Now what

Funko has been a highly volatile stock in recent years as investors debate how faddish its Pop! figurines are, and the coronavirus pandemic has only thrown more uncertainty into the mix. Factoring in the headwinds in Europe, the company is expecting sales to be down 8% to 10% in the fourth quarter, following a 13% decline in third-quarter revenue.

That performance has contrasted with some of the larger toymakers like Hasbro and Mattel, which saw solid growth during the third quarter, and are primed for a strong holiday quarter. Given that outlook, investors may want to tread lightly with Funko.

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.