Why Build-A-Bear Workshop Shot Up Close to 35% This Week

What happened

Shares of Build-A-Bear Workshop (BBW -0.66%) shot up as much as 34.6% this week, according to data from S&P Global Market Intelligence. The stuffed animal retail concept posted strong third-quarter results and raised its full-year guidance, sending shares higher. As of 1:13 p.m. ET on Friday, Dec. 2, the stock is up 34.2% this week. 

So what

On Nov. 30, Build-A-Bear released its quarterly results for the three months ending in October. Revenue grew 9.9% year over year to $104.5 million, pre-tax income increased 25.3% to $9.9 million, and diluted earnings per share (EPS) increased 41% to $0.51. These fantastic results were well above investor expectations heading into the period, which is why shares soared in the days following the report.

On top of these current results, management raised Build-A-Bear's full-year 2022 guidance. They now expect a range of $455 million to $465 million in revenue and $56 million to $63 million in pre-tax income in 2022. This compares to previous guidance ranges of $440 million to $460 million in revenue and $52 million to $63 million in pre-tax income at the end of the second quarter.

Build-A-Bear is using all its earnings to repurchase stock, spending $4.8 million to buy back shares in Q3 and $24.1 million through the first nine months of this year. With a current market cap of $362 million, that equates to 6.6% of its shares outstanding. Build-A-Bear also pays a healthy dividend yielding close to 5% at the moment, which investors are likely attracted to during a bear market. 

Now what

Even with the stock up so much, Build-A-Bear does not look expensive at current prices. Right now, management is expecting a tax rate of 25% in 2022. Applying that to the midpoint of its full-year pre-tax income guidance of $59.5 million, the company looks set to generate around $44.6 million in earnings after taxes in 2022. Compared to a market cap of $362 million, that is a forward price-to-earnings ratio (P/E) of just 8, well below the market average of approximately 20.

For a company growing revenue and returning tons of cash to shareholders through dividends and share repurchases, Build-A-Bear Workshop could still be a buy after its latest stock pop this week.