Is Build-A-Bear Workshop, Inc. (NYSE:BBW) Potentially Undervalued?

Build-A-Bear Workshop, Inc. (NYSE:BBW), might not be a large cap stock, but it saw a decent share price growth in the teens level on the NYSE over the last few months. Less-covered, small caps sees more of an opportunity for mispricing due to the lack of information available to the public, which can be a good thing. So, could the stock still be trading at a low price relative to its actual value? Today I will analyse the most recent data on Build-A-Bear Workshop’s outlook and valuation to see if the opportunity still exists.

See our latest analysis for Build-A-Bear Workshop

What Is Build-A-Bear Workshop Worth?

According to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Build-A-Bear Workshop’s ratio of 6.21x is trading slightly below its industry peers’ ratio of 10.46x, which means if you buy Build-A-Bear Workshop today, you’d be paying a reasonable price for it. And if you believe Build-A-Bear Workshop should be trading in this range, then there isn’t much room for the share price to grow beyond the levels of other industry peers over the long-term. Although, there may be an opportunity to buy in the future. This is because Build-A-Bear Workshop’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.

What does the future of Build-A-Bear Workshop look like?

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. However, with a relatively muted revenue growth of 5.9% expected in the upcoming year, short term growth doesn’t seem like a key driver for a buy decision for Build-A-Bear Workshop.

What This Means For You

Are you a shareholder? BBW’s future growth appears to have been factored into the current share price, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at BBW? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?

Are you a potential investor? If you’ve been keeping an eye on BBW, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the positive growth outlook may mean it’s worth diving deeper into other factors in order to take advantage of the next price drop.

It can be quite valuable to consider what analysts expect for Build-A-Bear Workshop from their most recent forecasts. So feel free to check out our free graph representing analyst forecasts.

If you are no longer interested in Build-A-Bear Workshop, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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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.