Obviously they are affected marginally by the increase in transportation costs, but that shouldn’t be a huge concern with the scale and design of their business.
Valuation Metrics
Build-A-Bear is trading at a pretty deep discount compared to most stocks in it’s sub-sector, especially considering the fact that Build-A-Bear has zero debt. Often companies with zero debt will trade at a premium to their competitors because they have a lower level of risk all other things 
being equal. On top of being debt free, here is a list of some other very impressive numbers.
- Trailing P/E - 10.70x
- 2008E P/E - 13.14x
- 2009E P/E - 11.89x
- Price/Book - 0.80x
- Enterprise Value/EBITDA - 2.69x
- Trailing PEG - 0.97x
- Total Cash and Cash Equivalents - $15.63M
- Book Value Per Share - $9.41
All of these stats are impressive but I’d like to focus on the $15M+ in cash. With a market capitalization of $146.23M you have a stock that is trading at $7.49 and has $0.8 of cash per share. With a stock price that is currently comprised of 10.7% of cash it seems pretty obvious that the risk level going forward is fairly low.
The most impressive statistic is the book value per share. At $9.41 sense that means other things being equal if the company was sold today for fair value there would be a 25.63% premium on today’s closing price. To me this is a a situation with some risk but much higher reward.
Risks and Conclusion
Yes, Build-A-Bear missed earnings last quarter missing by $0.12 and they have missed earnings three out of the last four quarters but I believe that with even average management this is the type of company where it would not take a ton of luck to succeed. The business model is solid and with the new GDP numbers coming out much better than expected today it could be time for a turn around. The stock is down from $40 to the current price of $7.49 and gone as low as $5.61. I believe that any price in the lower part of the $6.XX range would be a good entry price.
I was in a store last month to speak to a few of the employees and every single one at the store spoke glowingly of CEO Maxine Clark, three of which had met her personally on numerous occasions. It seemed that whenever I turned around half of the kids in the mall were lugging around one of the signature Build-A-Bear boxes, and this was when gasoline was closer to $4.00 a gallon. I think Build-A-Bear is a nice risk reward play for any investor trying to bet on an economic turnaround that is sooner than expect.
