Unbearably Good Investment: A Build-A-Bear Stock Analysis

Key Points

• Build-A-Bear is growing at record levels and widening margin; capital returns have started to flow. 
• Analysts have become interested in this stock and see it advancing at least 50%. 
• A move to new highs would be pivotal for this market and may lead to a multi-year rally and price-multiple expansion. 

Build-A-Bear Workshop NYSE: BBW is an iconic brand with enduring products that resonate with consumers - if you are looking for a comprehensive guide to Build-A-Bear stock, where it’s been and where it’s going, this is it. This article takes you on a journey that begins with the company’s founding, its rise to fame, and IPO and ends with the business and stock price outlook. By the end, it should be clear this company specializes in bears but is building a bull market for investors. The only questions are how high the stock can get and how long it will take the market to get there. 

Build-A-Bear: A Furry Revolution in Retail and Stock Analysis

Build-A-Bear Workshop was founded on a dream. Maxine Clark, formerly president of Payless ShoeSource, quit her job to follow that dream. She founded Build-A-Bear Workshop in 1997 after test marketing her concept. The test included two other concepts presented to children, and Build-A-Bear won. Fortunately, it was an easy decision because Build-A-Bear came with high margins. Those margins helped Ms. Clark expand the business quicker than initially planned. 

The company had nearly two dozen locations within as many months of operations due to its high-volume, high-margin business. The stores doubled the average sales per square foot for mall-based retailers and attracted investment from private equity firms because of the profits. Along the way, it initiated more than a dozen lawsuits protecting its patents and trademarks, leaving many would-be competitors with no choice but to close. 

Today, Build-A-Bear Workshop is the market leader in do-it-yourself stuffed animals. It is the largest operator with little to no direct competition. People who want to build a bear must go to Build-A-Bear. 

Is Build-a-Bear Publicly Traded?

The IPO came quickly for this company. It was floated on the open market in 2004 with great success only seven years after launch. The initial pricing increased as the IPO approached, and the first trades reached the high end of the range, so it was viewed as a success. 

Unfortunately, like many others, the IPO priced in numerous years’ worth of growth and the market soon came under pressure. The market for BBW shed more than 95% from high to low, about $34.55, eventually hitting bottom in 2020, nearly two decades after the first trade. 

Market Performance and Financial Overview: Build-A-Bear Stock Analysis

2018 was a pivotal year for the brand. A botched marketing gimmick turned into a goldmine of public awareness that has sustained growth for the business since. The company offered to let children pay for a bear based on age, attracting so many customers worldwide that it overwhelmed the operation. Unable to fulfill demand, the company provided vouchers to those who waited, helping to alleviate the damage. It took some time for the business to recover, but now it is booming. 

Can you Buy Stock in Build-a-Bear?

You can buy stock in Build-A-Bear; the question is, should you? Based on the trends, it looks like a good buy. The company is growing revenue at record levels, expected to accelerate in 2024, and its margins are widening. The operating margin is near 10% at the end of F2023 and more than double its significant toy-making peers, Hasbro NASDAQ: HAS and Mattel NASDAQ: MAT. 

Growth and leverage provide solid cash flow, as seen in the 2023 results, helping to maintain a healthy balance sheet. Details from 2023 include cash doubling and what was described as “comfortable” inventory levels by execs. Leverage is nearly non-existent. 

The stock price hit a bottom in 2020, coinciding with the COVID-19-related market sell-off. Already deeply undervalued, the stock has rebounded robustly since then, advancing more than 1700% between 2022 and today. Because the stock is trading at a deep value near 6.5X earnings with solid cash flow and growth in the outlook, it could increase another quadruple amount as the price-to-earnings multiple expands. Hasbro and Mattel trade at more than double the valuation. 

Strategic Initiatives and Expansion Plans: Impact on Build-A-Bear Stock Price

Build-A-Bear strategic plans focus on two avenues: expanded addressable markets and new stores. The store count is forecast to grow by 30 in 2024, raising it by nearly 6% on top of the 6% increase in 2024, and expansion is expected to continue domestically and internationally in 2025. 

The company is widening its addressable markets by offering new products with a timeless appeal. Products are based on licensing arrangements with significant toy and media brands, designers, and accessory manufacturers in high demand. Among the business's success drivers are the upsell opportunities, which include scents, sounds, clothing, and accessories. 

Other signs of improved market size are the success of the Axolotl toy among pre-teens and teens, the Bear-lieve Bear, and the line of pet products. The Bear-lieve Bear is an interactive bear that comes to life with touch and voice commands: AI for toy lovers. Pet Products became a thing after the company realized many of its accessory and clothing sales were being used for pets. The pet market is expected to grow at a mid-single-digit CAGR for the next five or more years, so it is a significant source of revenue. 

Is Build-a-Bear a Buy?

Factors influencing Build-A-Bear’s stock price are its balance sheet and capital returns. The balance sheet is a fortress with net cash and low leverage, which provide no red flags for investors and allow sustainable capital returns.

The capital return program is robust and includes share repurchases and dividends. Dividends are still erratic, so investors shouldn’t count on the stock for income. It started paying a special dividend in 2021 when cash flow and balance sheet improvements proved sticky, but it hasn’t paid distributions regularly yet. Regular dividend payments could start soon and significantly boost share prices. 

Repurchases are more regular and reduced the share count by over 2% in 2023. The authorization in place is worth about $25 million to investors in calendar 2024, equal to 2023, and is likely to increase at the end of the year. 

ESG (Environmental, Social, and Governance) Factors and Corporate Responsibility: Considerations for Build-A-Bear Stock Forecast

Build-A-Bear is an average company regarding ESG. Results from various ESG-tracking websites peg the stock as average for the industry, which is slightly above average for the broad market. Areas of concern include safety, fair labor, and equality issues, but not to the extent they impact market sentiment today. 

Analyst Forecasts and Investment Outlook for Build-A-Bear Stock

Build-A-Bear is a deeply undervalued stock trading at only 6.5X its earnings outlook for 2024 with growth, profits, and broader margin in the forecast. That value is amplified by the analyst's sentiment, which has it pegged at Buy and sees the stock advancing by double-digits.  

Marketbeat is only tracking three analysts with coverage, but their activity is noteworthy because all reports were issued late in 2023 and include two initiated coverages. Jeffries Financial Group and Northland Securities initiated coverage with a consensus Buy/Strong Buy and target near $38 shortly before the Q3 release. 

What is the Target Price for Build-a-Bear Stock?

The price targets for Build-A-Bear are robust and suggest at least a 50% upside for the stock. That aligns with the lowest target issued by analysts, and the highest adds another 1000 basis points. Because the company has begun to attract new coverage, more analysts may initiate and issue revisions as the year progresses. 

The analysts' price targets are significant because the low-end aligns with the all-time highs; the consensus and high-end would be fresh all-time highs. Moving above the low end at $36 would indicate a pivot in the market that could lead it much higher than the current high target. 

Basis technical targets include robust projections based on the rally's magnitude and range preceding the breakout. The move is worth about $34.50, putting a target of $70.50 in place. The move is also worth 2300%, setting a high-end target of $864. As unlikely as $864 sounds, the combination of growth, widening margin, cash flow, dividends and share repurchases would get it there over time.