Last week, fellow Fool Rick Munarriz commented on BabyUniverse's (AMEX:BUN) initial public offering, advising that the stock might gain a little momentum if the company could continue last year's profitability. Alas, it didn't.

The infant-centric retailer reported a loss last quarter, and with the release of its second-quarter report (its first report as a publicly traded company), BabyUniverse has even more ground to make up. Despite strong revenue growth of 90.7%, it posted a loss of $322,200 for the period.

In some ways, the company's IPO reminds me of Motley Fool Hidden Gems selection RedEnvelope (NASDAQ:REDE). It got picked up for our small-cap newsletter portfolio shortly after it hit the market. Not long after that, most Hidden Gems members agreed that the company may have gone public too soon.

An enterprise can have a good idea, and even a decent strategy to realize that idea. But operational performance ultimately determines a company's profitability. As RedEnvelope continues to disappoint its shareholders, it'll be interesting to see if BabyUniverse can achieve its stated goal of both organic and acquisition-fueled growth while functioning profitably. In the end, we Fools want investments that grow, but we also want those investments to produce cash.

BabyUniverse wants to be the last word in baby-specific shopping. Much like Children's Place (NASDAQ:PLCE) and Gymboree (NASDAQ:GYMB), which offer a wide selection of children's clothing, BabyUniverse's inventory of car seats, strollers, bedding, and toys gives consumers more choices than they'll find at retail giants like Wal-Mart (NYSE:WMT) or Target (NYSE:TGT).

Now, if it can consistently turn its cradles into cash, we might have a Foolish investment worth our hard-earned dollars.

Toddle over to these related Fool Takes:

Someday, even the littlest companies might grow up to be big performers. Find them while they're learning to crawl with a free 30-day trial subscription to Motley Fool Hidden Gems , your guide to the best small-cap stocks on the Street.

Fool contributor Jeremy MacNealy does not own shares in any of the companies mentioned.