Build-A-Bear Workshop's (NYSE:BBW) recent stock performance has left some investors growling. But while the bears of Wall Street are not known for patience, it could be a virtue in this case.

The company provides a creative, interactive experience -- kids make their own stuffed animals. Its extensive selection of merchandise includes more than 30 styles of animals to stuff and a variety of clothing, shoes, and accessories to dress them. The experience appeals to many age groups, to which I can attest personally. My three kids, aged 2, 6, and 10, all love going to the store to build animals. Grandparents are especially valued company -- they can't refuse any request from their grandkids.

For those Foolish readers who haven't visited a store -- and it would be hard not to because they are in many malls -- it is a unique experience. Typically, there are eight stations: Choose Me, Hear Me, Stuff Me, Stitch Me, Fluff Me, Dress Me, Name Me, and Take Me Home. The entryway is large and has big, colorful teddy bear themes and displays.

Build-A-Bear has licensing relationships with the NFL, NBA, and MLB. It also has an agreement with Skechers (NYSE:SKX). Some on Wall Street are concerned that the concept is a novelty, a place to visit only one time. But the company has a loyalty program; visitors to the den receive coupons, frequent-shopper discounts, and gift-with-purchase promotions.

Build-A-Bear shouldn't have too much trouble with the competition. Webkinz customers take care of their pets online. Some of its online games are nice, but others are akin to gambling. One of the online games, Wishing Well 2, is essentially an Atlantic City slot machine. How about that for teaching little Johnny math? Other retailers such as Toys "R" Us sell bears, of course, but the interactive experience is missing.

Recent problems
Earnings have been disappointing lately, falling nearly 50% to $0.08 per share last quarter. Revenues increased 7.2%, to $100.4 million, but the increase came almost entirely from new stores as same-store sales dropped 9.4% in North America. Weak mall traffic certainly shoulders some of the burden.

Placing a bet on merchandise from Shrek, the movie from DreamWorks Animation SKG (NYSE:DWA), was a mistake. It was a costly mistake, but not fatal, and certainly forgivable. It is trying again with a more generic Build-A-Dino. New stores performed well, with sales per square foot above the company average. This tells me the concept is alive and well. I would also caution against reading too much into this quarter's results because it typically isn't the strongest for the company. The fourth quarter, with the holidays, is more important.

Licensing, with $600,000 in revenue, is a minor part of the company's business. But that grew from practically nothing the year before. This could become important in the future, when the company seeks to diversify from its mall-based stores, especially with mall traffic down because of factors such as rising prices of gas and food. The company has entered into a series of licensing agreements with manufacturers to develop a collection of lifestyle Build-A-Bear Workshop-branded products, including children's furniture, fruit snacks, video and DVD games, a direct-to-home book club, stationery products, infant developmental toys, and school fundraising products. Manufacturers include ConAgra Foods, Scholastic At Home, Game Factory, and several others.

Build-A-Bear has promotional partnerships with MLB teams such as the New York Mets, which had a giveaway day, and McDonald's (NYSE:MCD), where bears have found their way into Happy Meals. The latest promotion involves bringing a Build-A-Bear bus to your school. All these steps help the company increase its brand awareness.

A bearable acquisition?
Build-A-Bear now trades at an attractive trailing price-to-earnings ratio of less than 13. That's what a couple of rough quarters will do. But the company has hired Lehman Brothers (NYSE:LEH) to explore "strategic alternatives." Frequently, this is a thinly disguised code for "seeking a sale," and given its clean balance sheet, a strategic buyer could be interested. A name that might pop up is Disney (NYSE:DIS), which already has a partnership with the company and could create some interesting synergy within its theme parks and product placements in movies and TV shows. Gymboree (NASDAQ:GYMB), which could share retail space, also might be interested. A private equity firm could look it over, but the uncertain debt markets makes financing a bit tricky right now.

While the uncertain markets make a takeover seem less likely, I wouldn't be surprised to see it happen when things settle down. But in the meantime, the company has a solid niche that kids seem to love. If the company can improve performance, it will put smiles on investors' faces, too.

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Fool contributor Lawrence Rothman is happy to receive feedback, and he promises to read it when he's not being wrestled by his three children. Feel free to email him at He doesn't have any positions in the companies mentioned. The Fool has a disclosure policy.