Build-A-Bear Workshop (BBW) returned +4.5% on a November stock options recommendation in article, “Politics and Options Investing“, and is still above the breakeven price of a trade mentioned in a November 29, 2006 blog entry “2%-12% Returns In Less Than 1 Month“. The initial article compared the financial success of blue (Democratic leaning) companies with red (Republican leaning) companies. This article will take a more detailed look at Build-A-Bear’s business model and viability as a sound stock options investment.
Shares of Build-A-Bear have rebounded a little more than 20% since falling below $20 in July. The question on many analysts’ minds is: will the company be able to maintain this level of growth?
Build-A-Bear company experienced impressive initial financial growth, however the company’s growth has stalled recently. Build-A-Bear’s stock price, since becoming available in late 2004, has oscillated (almost rhythmically with the seasons) between a high of almost $37 in January of 2005 and a low of $19.79 in July of this year.
Purchase of U.K. Rival Bear Factory Affects Earnings: The company released third-quarter results late last month. The earnings offered some insight into recent sales trends and on the purchase of U.K. based Bear Factory. The earnings showed sales growth was strong, however same-store sales declined (5.8%).
The company confirmed analysts’ earnings expectations of around $1.50. Total sales grew nearly 21% and analysts speculate the growth is primarily due to the purchase of the Bear Factory and new stores.
The company’s 2005 end of year financial report stated, “We believe there is a market potential for approximately 350 franchised stores outside the United States and Canada.”
Analysts report it is difficult to break out Build-A-Bear’s same-store sales and trends because of the merger-related costs, possibly skewing the numbers negatively. On the positive side, Build-A-Bear doesn’t have any long-term debt and they seem to have a steady cash flow.
However, some still question the viability of the Build-A-Bear concept for the long-term. German
Expansion:
Build-A-Bear Workshop Inc. announced in late September it would expand to Germany with two franchise stores in Hamburg.
The company has signed a franchise agreement with Choose Germany as a partner in the Hamburg stores. Choose Germany is a subsidiary of a company already holding franchise rights to Build-A-Bear Workshop in Denmark, Sweden and Norway.
Build-A-Bear Workshop said franchisees had 22 stores open in eight countries as of July 1, with around 30 stores expected by the end of the year.
Community Activism:
Build-A-Bear offers choices sensitive to customers wanting to feel like they are making a difference in the world through their consumerism. The company currently offers three product choices where portions of the proceeds go to charitable organizations. The charities are First Book (a low-income children’s reading program), animal shelters, and the World Wildlife Fund.
Potential Trade:
With Build-A-Bear’s eye on growth, the company’s stock may be attractive for a covered calls stock options strategy. Using PowerOptions stock options search tools, an attractive Build-A-Bear January covered calls stock options position was found for trading on December 12, 2006:
| Build-A-Bear Workshop Inc. (BBW) $ 29.08 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| OPTION | Expiration / Strike |
Opt. Bid |
%Dnsd. Prot |
%If Unch. |
%If Asgnd |
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| BBWAF | 07 JAN 30.0 | $0.95 | 3.30% | 3.40% | 6.60% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The selected Build-A-Bear covered calls stock options position offers attractive downside protection of +3.3% with potential profits most investors will find appealing. The potential profit, in the event the covered calls stock options position is assigned, is a healthy +6.6% (in only 40 days), but even in the event the stock price remains stagnant a nice profit of +3.3% will be experienced.
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[tags]Democratic, Republican, U.K., Bear Factory, United States, Canada, Germany, Hamburg, Choose Germany, Denmark, Sweden, Norway, First Book, World Wildlife Fund, BBW, Build-A-Bear Workshop Inc., covered call investing, iron condor, option income, poweroptions, selling naked puts, stock option trading, stock options[/tags]