BBW: After An >150% Return, Build-A-Bear Still Looks Close to a Double
Why investors are sleeping on, and not with, this teddy bear name
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Quick Recap
In late August of 2022, we published our initial research on Build-A-Bear Workshop (BBW) when it was trading at ~$16/share and just ~5x P/E. The stock was incredibly cheap and the market was not giving it the recognition it deserved. We pitched the name as a deep-value stock or if a sponsor opened their eyes to the idea, a prime takeout target with a potential IRR in the triple-digits.
Yes, triple-digits. (See below for report + math — it’s free).
Since then, the stock has delivered a total return of >150% when you factor in all the share buybacks and dividend distributions.
However, is there more stuffing to squeeze after such a run-up in the stock? We think yes, and outline once again why the market does not understand, nor appreciate, the strategy here.
Below we highlight what the go-forward strategy is and how this stock can become a double in the next few years.
Investment Overview
If you remember from our initial report, the business model of BBW was a simple one and still is, which is why I won’t go in-depth here as you can refer to the initial post.
Over the last decade-plus, the company moved away from mall-based stores stretching thousands of square feet (Discovery model) to strategically located stores with a smaller footprint of just a few hundred square feet (Concourse/SIS model).
The smaller footprint stores allowed for better ROIs as a lower initial investment cost was required which proved ideal for enhancing ROIC.
On top of store footprint changes, the company has pushed heavily into online (~15% of segment sales today vs ~5% in 2019), dual-purpose retail (online fulfillment), boasted no debt, healthy cash on the balance sheet, hefty share repurchase programs, and other strategic initiatives to drive the business forward like vending machines, licensing, and 3rd party operated locations.
All of this helped the company finally get the recognition it deserved but as we mentioned above, even after a 150% return since our post, there’s still room to run over the next few years.
How does it get there? By emphasizing asset-light growth.