Earnings

Reliable Long-term Trend to Profit From: TAL Education Group (TAL), Funko, Inc. (FNKO)

The shares of TAL Education Group have increased by more than 17.06% this year alone. The shares recently went up by 2.78% or $0.94 and now trades at $34.78. The shares of Funko, Inc. (NASDAQ:FNKO), has jumped by 202.56% year to date as of 08/09/2018. The shares currently trade at $20.12 and have been able to report a change of 15.83% over the past one week.

The stock of TAL Education Group and Funko, Inc. were two of the most active stocks on Thursday. Investors seem to be very interested in what happens to the stocks of these two companies but do investors favor one over the other? We will analyze the growth, profitability, risk, valuation, and insider trends of both companies and see which one investors prefer.

Next 5Y EPS Growth: 44.89% versus 1.80%

When a company is able to grow consistently in terms of earnings at a high compound rate have the highest likelihood of creating value for its shareholders over time. Analysts have predicted that TAL will grow it’s earning at a 44.89% annual rate in the next 5 years. This is in contrast to FNKO which will have a positive growth at a 1.80% annual rate. This means that the higher growth rate of TAL implies a greater potential for capital appreciation over the years.

Profitability and Returns

Growth alone cannot be used to see if the company will be valuable. Shareholders will be the losers if a company invest in ventures that aren’t profitable enough to support upbeat growth. In order for us to accurately measure profitability and return, we will be using the EBITDA margin and Return on Investment (ROI), which balances the difference in capital structure. TAL has an EBITDA margin of 18.82%, this implies that the underlying business of TAL is more profitable. The ROI of TAL is 8.70% while that of FNKO is 11.00%. These figures suggest that FNKO ventures generate a higher ROI than that of TAL.

Cash Flow



The value of a stock is ultimately determined by the amount of cash flow that the investors have available. Over the last 12 months, TAL’s free cash flow per share is a negative -1.42.

Liquidity and Financial Risk

The ability of a company to meet up with its short-term obligations and be able to clear its longer-term debts is measured using Liquidity and leverage ratios. The current ratio for TAL is 1.30 and that of FNKO is 1.60. This implies that it is easier for TAL to cover its immediate obligations over the next 12 months than FNKO. The debt ratio of TAL is 0.13 compared to 1.97 for FNKO. FNKO can be able to settle its long-term debts and thus is a lower financial risk than TAL.

Valuation

TAL currently trades at a forward P/E of 45.64, a P/B of 10.97, and a P/S of 9.69 while FNKO trades at a forward P/E of 23.23, a P/B of 3.83, and a P/S of 0.76. This means that looking at the earnings, book values and sales basis, FNKO is the cheaper one. It is very obvious that earnings are the most important factors to investors, thus analysts are most likely to place their bet on the P/E.

Analyst Price Targets and Opinions




The mistake some people make is that they think a cheap stock has more value to it. In order to know the value of a stock, there is need to compare its current price to its likely trading price in the future. The price of TAL is currently at a -15.64% to its one-year price target of 41.23. Looking at its rival pricing, FNKO is at a 24.74% relative to its price target of 16.13.

When looking at the investment recommendation on say a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell), TAL is given a 2.00 while 1.90 placed for FNKO. This means that analysts are more bullish on the outlook for TAL stocks.

Insider Activity and Investor Sentiment

Short interest or otherwise called the percentage of a stock’s tradable shares currently being shorted is another data that investors use to get a handle on sentiment. The short ratio for TAL is 2.70 while that of FNKO is just 1.54. This means that analysts are more bullish on the forecast for FNKO stock.

Conclusion

The stock of TAL Education Group defeats that of Funko, Inc. when the two are compared, with TAL taking 5 out of the total factors that were been considered. TAL happens to be more profitable, generates a higher ROI, has higher cash flow per share, higher liquidity and has a lower financial risk. When looking at the stock valuation, TAL is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for TAL is better on when it is viewed on short interest.

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