Nasdaq
華爾街日報Build-A-Bear Workshop, Inc. (NYSE:BBW) Held Back By Insufficient Growth Even After Shares Climb 25%
Build-A-Bear Workshop, Inc. (NYSE:BBW) shareholders are no doubt pleased to see that the share price has bounced 25% in the last month, although it is still struggling to make up recently lost ground. Looking back a bit further, it's encouraging to see the stock is up 30% in the last year.
Although its price has surged higher, given about half the companies in the United States have price-to-earnings ratios (or "P/E's") above 20x, you may still consider Build-A-Bear Workshop as an attractive investment with its 13.2x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.
With earnings growth that's superior to most other companies of late, Build-A-Bear Workshop has been doing relatively well. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.
View our latest analysis for Build-A-Bear Workshop
How Is Build-A-Bear Workshop's Growth Trending?
There's an inherent assumption that a company should underperform the market for P/E ratios like Build-A-Bear Workshop's to be considered reasonable.
Retrospectively, the last year delivered an exceptional 15% gain to the company's bottom line. Pleasingly, EPS has also lifted 34% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.
Turning to the outlook, the next three years should generate growth of 2.6% per year as estimated by the four analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 11% per annum, which is noticeably more attractive.
With this information, we can see why Build-A-Bear Workshop is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.
The Bottom Line On Build-A-Bear Workshop's P/E
Build-A-Bear Workshop's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.
As we suspected, our examination of Build-A-Bear Workshop's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.
The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for Build-A-Bear Workshop with six simple checks.
You might be able to find a better investment than Build-A-Bear Workshop. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).
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