Funko, Inc. (NASDAQ:FNKO) shareholders have had their patience rewarded with a 29% share price jump in the last month. The last 30 days bring the annual gain to a very sharp 80%.

In spite of the firm bounce in price, there still wouldn't be many who think Funko's price-to-sales (or "P/S") ratio of 0.6x is worth a mention when the median P/S in the United States' Leisure industry is similar at about 1x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for Funko

What Does Funko's P/S Mean For Shareholders?

Recent times haven't been great for Funko as its revenue has been falling quicker than most other companies. It might be that many expect the dismal revenue performance to revert back to industry averages soon, which has kept the P/S from falling. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value. If not, then existing shareholders may be a little nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Funko.

What Are Revenue Growth Metrics Telling Us About The P/S?

The only time you'd be comfortable seeing a P/S like Funko's is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered a frustrating 10% decrease to the company's top line. That put a dampener on the good run it was having over the longer-term as its three-year revenue growth is still a noteworthy 27% in total. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.

Turning to the outlook, the next year should demonstrate some strength in company's business, generating growth of 3.9% as estimated by the four analysts watching the company. This isn't typically strong growth, but with the rest of the industry predicted to shrink by 1.6%, that would be a solid result.

Despite the marginal growth, we find it odd that Funko is trading at a fairly similar P/S to the industry. Apparently some shareholders are skeptical of the contrarian forecasts and have been accepting lower selling prices.

The Key Takeaway

Funko's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Funko currently trades on a lower than expected P/S since its growth forecasts are potentially beating a struggling industry. We assume that investors are attributing some risk to the company's future revenues, keeping it from trading at a higher P/S. Perhaps there is some hesitation about the company's ability to keep swimming against the current of the broader industry turmoil. It appears some are indeed anticipating revenue instability, because the company's current prospects should normally provide a boost to the share price.

Before you settle on your opinion, we've discovered 2 warning signs for Funko that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.