If you missed the BellRing Brands ride, you might be able to catch another ride in Build-A-Bear. The stock has been depressed but the fundamentals appear to be intact. There has been a drop in EBIT due to an increase in SG&A. This increase was mainly due to higher wages. The one thing I’ve noticed in my analysis thus far is the declining/flat marketing spend while revenues are trending up. This is a positive sign. They are spending less to acquire customers. The question is how sustainable this is? There is a concern around foot traffic but, I’m not sure that’s enough for the massive decline in share prices.
The wide gap between consensus estimates and the current market price is a signal that there’s a lot of uncertainty around their sustainability of cash flows. This is the perfect opportunity to dig in and see if there is something here. They have no debt and although declining, a consistent high ROIC. The one metric that might be a real concern is their cash conversion cycle. Their CCC has been trending in the wrong direction. Days inventory outstanding has been trending up. This could mean a number of things and requires more investigative work. On the plus side, these are not perishable items that we are dealing with. You don’t have to worry about spoilage. Which means there shouldn’t be any markdowns to move the inventory. The inventory could be bloated in preparation for a large sales cycle. Again this is going to require more work.
In conclusion, during my preliminary assessment, I think the stock is worth $35-$45. With the stock currently trading at $31. There is still time to catch the ride. I bought my first lot at $30. As I finalize my due diligence I’ll either buy more or stay put. Stay tuned!