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Why Funko Stock Popped 9%

By Rich Smith – Aug 31, 2021 at 2:23PM

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Jefferies sees optionality in Funko's NFTs.

What happened

Shares of pop icon toymaker Funko (FNKO 7.35%) -- what else? -- popped Tuesday afternoon in response to an upgrade from an analyst at Jefferies Financial Group.

As of 1:45 p.m. EDT, Funko stock is up a solid 9%.

Glowing green arrow climbs up on a stock screen.

Image source: Getty Images.

So what

"We have grown increasingly confident in [Funko's] med-term 10%+ growth and business trajectory," explained Jefferies in a note covered by StreetInsider.com this morning. Foot traffic is reviving in stores, which provides a "favorable backdrop" to sales projections. Meanwhile, despite tripling in price over the past year, Funko stock still trades at a discount to its peers.

Just reaching the average valuation of the toy stocks category, argues the analyst, should yield a $25 target price on Funko stock.

Now what

And that could be just the beginning. As you may have heard, Funko has been exploring the idea of making a foray into the market for non-fungible tokens. While it's not yet quite clear whether NFTs are going to be the next big craze, or just a passing fad, Jefferies says there's at least "optionality" in buying into Funko stock at its present depressed valuation, just in case "digital collectibles" become a thing.

In plain English, that means the analyst thinks Funko is cheap enough to buy as is, and could be even cheaper if it develops a big NFT business. With Funko stock currently trading for barely eight times trailing free cash flow, I'm inclined to agree.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Stocks Mentioned

Funko, Inc. Stock Quote
Funko, Inc.
FNKO
$10.51 (7.35%) $0.72

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