Is Funko, Inc.’s (NASDAQ: FNKO) mixed finance causing the negative sentiment?

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It’s hard to get excited after looking at the recent performance of Funko (NASDAQ: FNKO), as its stock has fallen 19% in the past month. It seems that the market has completely ignored the positive aspects of the company’s fundamentals and decided to weigh more heavily on the negative aspects. Fundamentals usually dictate market outcomes, so it makes sense to study company finances. In particular, we’ll be paying special attention to Funko’s ROE today.

ROE or return on equity is a useful tool to assess how effectively a company can generate the returns on investment it has received from its shareholders. In other words, it is a profitability ratio that measures the rate of return on capital contributed by the shareholders of the company.

See our latest review for Funko

How is the ROE calculated?

the return on equity formula is:

Return on equity = Net income (from continuing operations) ÷ Equity

So, based on the above formula, Funko’s ROE is:

8.0% = US $ 27 million ÷ US $ 333 million (based on the last twelve months to March 2021).

The “return” is the income the business has earned over the past year. This means that for every dollar in shareholders’ equity, the company generated $ 0.08 in profit.

What does ROE have to do with profit growth?

We have already established that ROE is an effective indicator of profit generation for a company’s future profits. We now need to assess how much profit the company is reinvesting or “holding back” for future growth, which then gives us an idea of ​​the growth potential of the company. Generally speaking, all other things being equal, companies with high return on equity and high profit retention have a higher growth rate than companies that do not share these attributes.

Funko earnings growth and ROE of 8.0%

When you first watch it, Funko’s ROE doesn’t look so appealing. We then compared the company’s ROE to that of the industry as a whole and were disappointed to find that the ROE is 14% below the industry average. Given the circumstances, the significant drop in net income of 37% observed by Funko over the past five years is not surprising. We believe there could be other factors at play here as well. For example, the company has a very high payout rate or faces competitive pressures.

However, when we compared Funko’s growth with that of the industry, we found that although the company’s profits declined, the industry saw profit growth of 6.6% over the past year. same period. It is quite worrying.

NasdaqGS: FNKO Past Profit Growth July 2, 2021

The basis for attaching value to a business is, to a large extent, related to the growth of its profits. What investors next need to determine is whether the expected earnings growth, or lack thereof, is already built into the share price. This will help them determine if the future of the stock looks bright or threatening. Is the FNKO just valued? This intrinsic business value infographic has everything you need to know.

Is Funko Efficiently Using Its Retained Earnings?

summary

All in all, we are a bit ambivalent about Funko’s performance. Even though it appears to be keeping most of its earnings, given the low ROE, investors might not benefit from all this reinvestment after all. The weak earnings growth suggests that our theory is correct. That said, looking at current analysts’ estimates, we found that the company’s earnings growth rate is expected to see a huge improvement. To learn more about the company’s future earnings growth forecast, take a look at this free analyst forecast report for the company to learn more.

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This Simply Wall St article is general in nature. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.
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