Build-A-Bear Workshop, Inc. (BBW) is a specialty retailer that sells customizable stuffed animals and related products. The company operates over 400 stores worldwide and also sells online and through third-party channels. BBW was founded in 1997 and went public in 2004.
Technical Analysis
Technical analysis is the study of price movements and patterns in the stock market, using various indicators and tools. Technical analysts use charts, trend lines, support and resistance levels, moving averages, oscillators, and other methods to identify trading opportunities and signals.
Looking at the chart of BBW stock on FinViz, we can see that the stock has been in a strong uptrend since March 2020, when it hit a low of $1.15 amid the COVID-19 pandemic. The stock has since rallied more than 2,000% to reach a high of $26.87 on August 16, 2021. The stock has also outperformed the S&P 500 index by a wide margin in the past year, gaining over 100% compared to the index’s 30% return.
The stock is currently trading above its 50-day and 200-day simple moving averages (SMA), which are widely used indicators of the long-term and intermediate-term trends. The 50-day SMA is also above the 200-day SMA, indicating a bullish crossover that signals an uptrend continuation. The stock is also above its upper Bollinger Band, which is a volatility indicator that shows the range of price movements within two standard deviations of the 20-day SMA. This suggests that the stock is overbought and may be due for a pullback or consolidation.
The relative strength index (RSI) is another popular indicator that measures the momentum and strength of price movements on a scale of 0 to 100. A high RSI value indicates overbought conditions, while a low RSI value indicates oversold conditions. Generally, an RSI above 70 is considered overbought, while an RSI below 30 is considered oversold. The RSI of BBW stock is currently at 61.67, which is neither overbought nor oversold, but closer to the overbought threshold. This implies that the stock may have some room to run higher before encountering resistance or profit-taking.
The short-term KST (know sure thing) oscillator is another momentum indicator that compares four different smoothed moving averages to generate buy and sell signals. A positive KST value indicates bullish momentum, while a negative KST value indicates bearish momentum. A bullish crossover occurs when the KST line crosses above the signal line, while a bearish crossover occurs when the KST line crosses below the signal line. The KST of BBW stock is currently negative at -0.10, but it has recently crossed above its signal line, indicating a bullish crossover that signals a possible reversal or bounce.
Fundamental Analysis
Fundamental analysis is the evaluation of a company’s financial performance, growth prospects, competitive advantages, and valuation metrics. Fundamental analysts use financial statements, ratios, earnings reports, industry trends, and other factors to assess the intrinsic value and potential of a company.
According to Yahoo Finance, BBW reported its second-quarter earnings results on August 24, 2021. The company posted revenue of $94.7 million, which was down 2% year-over-year but beat analysts’ expectations of $91 million. The company also reported earnings per share (EPS) of $0.48, which was up 9% year-over-year and beat analysts’ estimates of $0.41.
The company attributed its strong performance to its e-commerce growth, product innovation, operational efficiency, and loyal customer base. The company also raised its full-year guidance for revenue and EPS, reflecting its confidence in its business outlook. Some of the key financial ratios that can help us evaluate BBW’s fundamentals are:
Price-to-earnings (P/E) ratio: This measures how much investors are willing to pay for each dollar of earnings. A low P/E ratio indicates that the stock is undervalued or has low growth expectations, while a high P/E ratio indicates that the stock is overvalued or has high growth expectations. The P/E ratio of BBW stock is currently at 7.77, which is significantly lower than the industry average of 25.63 and the S&P 500 average of 28.41. This suggests that the stock is undervalued or has low growth expectations compared to its peers and the market.
Price-to-sales (P/S) ratio: This measures how much investors are willing to pay for each dollar of sales. A low P/S ratio indicates that the stock is undervalued or has low profitability, while a high P/S ratio indicates that the stock is overvalued or has high profitability. The P/S ratio of BBW stock is currently at 0.78, which is lower than the industry average of 1.09 and the S&P 500 average of 3.05. This suggests that the stock is undervalued or has low profitability compared to its peers and the market.
Return on assets (ROA): This measures how efficiently a company uses its assets to generate earnings. A high ROA indicates that the company is profitable and has good asset management, while a low ROA indicates that the company is unprofitable and has poor asset management. The ROA of BBW is currently at 18.2%, which is higher than the industry average of 8.7% and the S&P 500 average of 6.4%. This suggests that the company is profitable and has good asset management compared to its peers and the market.
Return on equity (ROE): This measures how efficiently a company uses its equity to generate earnings. A high ROE indicates that the company is profitable and has good shareholder value creation, while a low ROE indicates that the company is unprofitable and has poor shareholder value creation. The ROE of BBW is currently at -30.1%, which is lower than the industry average of 18.9% and the S&P 500 average of 21%. However, this is mainly due to the company’s negative book value, which is caused by its accumulated losses and share repurchases. A more meaningful measure of shareholder value creation for BBW is its return on invested capital (ROIC), which measures how efficiently a company uses its capital to generate earnings. The ROIC of BBW is currently at 46.2%, which is higher than the industry average of 15% and the S&P 500 average of 12%. This suggests that the company is profitable and has good shareholder value creation compared to its peers and the market.
Price Predictions
Based on the technical and fundamental analysis, I will now provide my price predictions for BBW stock in different time horizons, using a combination of trend analysis, moving averages, Fibonacci retracements, and analyst estimates.
In one week: I expect BBW stock to continue its uptrend in the short term, as it has recently bounced off its 50-day SMA and formed a bullish crossover on its KST oscillator. I also expect the stock to break above its upper Bollinger Band and test its recent high of $26.87. Therefore, my price prediction for BBW stock in one week is $27.
In one month: I expect BBW stock to face some resistance at its recent high of $26.87, as it may encounter some profit-taking and overbought conditions. I also expect the stock to retrace some of its gains and find support at its 50-day SMA or its Fibonacci retracement level of $23.67, which is based on the swing low of $11.70 and the swing high of $26.87. Therefore, my price prediction for BBW stock in one month is $24.
In three months: I expect BBW stock to resume its uptrend in the medium term, as it may benefit from its strong e-commerce growth, product innovation, operational efficiency, and loyal customer base. I also expect the stock to break above its recent high of $26.87 and reach its next Fibonacci extension level of $31.07, which is based on the swing low of $11.70, the swing high of $26.87, and the retracement level of $23.67. Therefore, my price prediction for BBW stock in three months is $31.
In six months: I expect BBW stock to maintain its uptrend in the long term, as it may benefit from its raised full-year guidance, positive earnings growth, attractive valuation metrics, and high shareholder value creation. I also expect the stock to break above its next Fibonacci extension level of $31.07 and reach its analyst target price of $41, which represents a consensus among four analysts who cover the stock. Therefore, my price prediction for BBW stock in six months is $41.
In one year: I expect BBW stock to continue its uptrend in the very long term, as it may benefit from its competitive advantages, loyal customer base, product innovation, operational efficiency, e-commerce growth, positive earnings growth, attractive valuation metrics, and high shareholder value creation.
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