Trading Blueprint for Funko Inc (FNKO) Stock

Maker of Funko (NASDAQ: FNKO) popular “Pops!” branded vinyl dolls has grown a global a cult-like following for their collectible products. Rare Pops! Dolls can fetch thousands in the secondary collector’s market. Funko dolls are licensed and promptly produced in limited batches of pop culture icons, themes and characters. The limited nature of the rarest variant dolls cause values to skyrocket as demand grows. FNKO has been able to template this model but relies on timely selection and marketing to pick the hottest trending characters before the buzz peaks. Pundits compare Funko Pops to the Beanie Babies and Cabbage Patch Kids of decades past and face the same bubble bursting demise.

FNKO pre-announced an earnings warning on Feb. 5, 2020, cutting revenue guidance for Q4 2019 from $264.3 million down to $213.6 million and EPS guidance from $0.43-per share to a range of $0.16 to $0.18-per share. The drastic guidance cut shocked investors expecting an 8-percent steady YoY growth rate but got a (-20 percent) shortfall. Analysts including JP Morgan, Bank of America Merrill, DA Davidson and Jeffries all downgraded shares of FNKO the following morning triggering a (-35 percent) price gap down that proceeded to lose over 40-percent of market cap despite FNKO maintaining full-year 2020 estimates. The S&P 500 (NYSEARCA: SPY) sell-off on coronavirus fears further compounded the negative sentiment sending shares to new 52-week lows at the 7.34 Fibonacci (fib) level ahead of its actual Q4 2019 earnings results.

Earnings Catalyst

FNKO reports actual Q4 2019 earnings post-market on Thursday, March 5, 2020, followed by the 4:30 pm EST conference call. Consensus analyst estimates are for 0.16-EPS profit on revenues of $213.75 billion reflecting the pre-announced guidance cut. While the warning was specific to the exceptional weakness in holiday sales, investors will be bracing for any further downside adjustments to their full-year 2020 guidance in light of the coronavirus impacts on supply chains and consumer demand. With the sentiment already bleak, management could improve sentiment if Q4 results actually come in higher than estimates with no additional guidance revisions. Visibility will be critical for management to regain investor confidence.

Rifle Chart Technical Analysis Trajectories: Longer-Term

We use the rifle charts on wider time frames to lay out the playing field suitable for swing traders and investors. After the collapse from the Feb. 5^th warning, FNKO made bounce attempts off the 8.98 Fibonacci (fib) level to peak out twice at 10.20 before continues to sell-off towards the 7.32 fib heading into earnings. The daily has a bearish inverse pup breakdown rejecting bounce attempts at the 5-period MA, while the stochastic attempt to mini pup up through the 20-band. This is a daily make or break pattern. The weekly has an ominous “double-barrel” bearish MA inverse pup and stochastic mini inverse pup with lower Bollinger Band (BB) target at the 5.81 fib. The weekly resistances sit at the 5-pd MA at the 8.59 fib and 15-pd MA at the 13.00 fib.

Sympathy Stocks:

FNKO may have positive correlation to toy makers Mattel Inc. (NASDAQ: MAT) and Hasbro (NASDAQ: HAS). Since these are much larger diversified legacy players, the FNKO gap would have to be large enough to stir interest for sympathy traders. A 20-percent or more gap would likely trigger some positive correlation to MAT and HAS at least for the morning gap.

Trading Game Plan for Earnings Gap:

This information is accommodative to intraday and short-term traders looking to play the earnings gap.   With a post-market earnings release on Thursday, March 5, 2020, immediately followed by the conference call 4:30 pm EST. Only the nimblest traders should even consider hitting the immediate reaction on the post-market release. If FNKO gaps down over 20-percent on the initial reaction, a reversion bounce could set-up heading into the 5:00 pm EST conference call.  

Nimble pre-market traders can scalp the price gap reversion levels, but most should wait for the morning session off the opening bell. Traders can expect scalps ranging from 0.10 to 0.25 in the first 20-minutes as ranges and spreads eventually get tighter. Reversion scalps off the key price inflections levels can be played for the second gap reaction then shift focus to the third reaction trend move.

The gap price reversion levels for the upside price gaps are: 8.59 fib, 8.98 fib, 10.19 fib and 11.62 fib. Downside gap reversion price levels are: 6.28, 5.81, 4.96 and 4.47. Make sure you do your pre-market preparation and plan your scalps ahead of the opening bell.