Intrinsic value of Build-A-Bear Workshop - BBW

Previous Close

$8.45

  Intrinsic Value

$11.79

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  Rating & Target

buy

+39%

Previous close

$8.45

 
Intrinsic value

$11.79

 
Up/down potential

+39%

 
Rating

buy

We calculate the intrinsic value of BBW stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 0.1

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -3.70
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  364
  371
  380
  390
  401
  413
  426
  441
  456
  473
  491
  511
  531
  554
  577
  602
  628
  656
  686
  717
  750
  785
  821
  860
  901
  943
  989
  1,036
  1,086
  1,139
  1,194
Variable operating expenses, $m
 
  71
  72
  74
  76
  78
  81
  84
  87
  90
  93
  97
  101
  105
  110
  114
  119
  125
  130
  136
  142
  149
  156
  163
  171
  179
  188
  197
  206
  216
  227
Fixed operating expenses, $m
 
  302
  310
  318
  326
  334
  342
  351
  359
  368
  378
  387
  397
  407
  417
  427
  438
  449
  460
  472
  483
  495
  508
  521
  534
  547
  561
  575
  589
  604
  619
Total operating expenses, $m
  359
  373
  382
  392
  402
  412
  423
  435
  446
  458
  471
  484
  498
  512
  527
  541
  557
  574
  590
  608
  625
  644
  664
  684
  705
  726
  749
  772
  795
  820
  846
Operating income, $m
  5
  -2
  -2
  -2
  -1
  1
  3
  6
  10
  15
  20
  27
  34
  42
  51
  60
  71
  83
  95
  109
  124
  140
  157
  176
  196
  217
  240
  265
  291
  319
  348
EBITDA, $m
  21
  13
  13
  14
  15
  17
  20
  24
  28
  34
  40
  47
  55
  64
  74
  84
  96
  109
  123
  138
  154
  172
  190
  210
  232
  255
  280
  306
  334
  364
  396
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  5
  5
  6
  6
  7
  7
  8
Earnings before tax, $m
  5
  -2
  -2
  -2
  -1
  0
  2
  6
  9
  14
  19
  25
  32
  40
  49
  58
  69
  80
  92
  106
  121
  136
  153
  171
  191
  212
  235
  259
  284
  312
  341
Tax expense, $m
  4
  0
  0
  0
  0
  0
  1
  1
  3
  4
  5
  7
  9
  11
  13
  16
  19
  22
  25
  29
  33
  37
  41
  46
  52
  57
  63
  70
  77
  84
  92
Net income, $m
  1
  -2
  -2
  -2
  -1
  0
  2
  4
  7
  10
  14
  19
  24
  29
  36
  42
  50
  58
  68
  77
  88
  99
  112
  125
  139
  155
  171
  189
  208
  228
  249

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  32
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  200
  171
  175
  180
  185
  190
  197
  203
  211
  218
  227
  236
  245
  255
  266
  278
  290
  303
  316
  331
  346
  362
  379
  397
  416
  435
  456
  478
  501
  525
  551
Adjusted assets (=assets-cash), $m
  168
  171
  175
  180
  185
  190
  197
  203
  211
  218
  227
  236
  245
  255
  266
  278
  290
  303
  316
  331
  346
  362
  379
  397
  416
  435
  456
  478
  501
  525
  551
Revenue / Adjusted assets
  2.167
  2.170
  2.171
  2.167
  2.168
  2.174
  2.162
  2.172
  2.161
  2.170
  2.163
  2.165
  2.167
  2.173
  2.169
  2.165
  2.166
  2.165
  2.171
  2.166
  2.168
  2.169
  2.166
  2.166
  2.166
  2.168
  2.169
  2.167
  2.168
  2.170
  2.167
Average production assets, $m
  73
  75
  76
  78
  81
  83
  86
  89
  92
  95
  99
  103
  107
  111
  116
  121
  126
  132
  138
  144
  151
  158
  165
  173
  181
  190
  199
  208
  218
  229
  240
Working capital, $m
  27
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
Total debt, $m
  0
  2
  4
  7
  10
  13
  17
  21
  26
  30
  35
  41
  46
  53
  59
  66
  73
  81
  89
  98
  107
  117
  127
  137
  149
  161
  173
  186
  200
  215
  230
Total liabilities, $m
  100
  103
  105
  108
  111
  114
  118
  122
  127
  131
  136
  142
  147
  154
  160
  167
  174
  182
  190
  199
  208
  218
  228
  238
  250
  262
  274
  287
  301
  316
  331
Total equity, $m
  99
  68
  70
  72
  74
  76
  78
  81
  84
  87
  90
  94
  98
  102
  106
  111
  116
  121
  126
  132
  138
  144
  151
  158
  166
  174
  182
  191
  200
  210
  220
Total liabilities and equity, $m
  199
  171
  175
  180
  185
  190
  196
  203
  211
  218
  226
  236
  245
  256
  266
  278
  290
  303
  316
  331
  346
  362
  379
  396
  416
  436
  456
  478
  501
  526
  551
Debt-to-equity ratio
  0.000
  0.030
  0.060
  0.100
  0.140
  0.180
  0.220
  0.260
  0.300
  0.350
  0.390
  0.430
  0.470
  0.520
  0.560
  0.590
  0.630
  0.670
  0.710
  0.740
  0.770
  0.810
  0.840
  0.870
  0.900
  0.920
  0.950
  0.980
  1.000
  1.020
  1.050
Adjusted equity ratio
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1
  -2
  -2
  -2
  -1
  0
  2
  4
  7
  10
  14
  19
  24
  29
  36
  42
  50
  58
  68
  77
  88
  99
  112
  125
  139
  155
  171
  189
  208
  228
  249
Depreciation, amort., depletion, $m
  16
  15
  15
  16
  16
  17
  17
  18
  18
  19
  20
  21
  21
  22
  23
  24
  25
  26
  28
  29
  30
  32
  33
  35
  36
  38
  40
  42
  44
  46
  48
Funds from operations, $m
  4
  13
  13
  13
  15
  17
  19
  22
  25
  29
  34
  39
  45
  52
  59
  67
  75
  85
  95
  106
  118
  131
  145
  160
  176
  193
  211
  230
  251
  273
  297
Change in working capital, $m
  -12
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
Cash from operations, $m
  16
  13
  13
  14
  15
  17
  19
  22
  25
  29
  34
  39
  45
  52
  59
  67
  76
  85
  95
  107
  119
  132
  145
  160
  176
  193
  212
  231
  252
  274
  298
Maintenance CAPEX, $m
  0
  -15
  -15
  -15
  -16
  -16
  -17
  -17
  -18
  -18
  -19
  -20
  -21
  -21
  -22
  -23
  -24
  -25
  -26
  -28
  -29
  -30
  -32
  -33
  -35
  -36
  -38
  -40
  -42
  -44
  -46
New CAPEX, $m
  -28
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
Cash from investing activities, $m
  -27
  -17
  -17
  -17
  -18
  -18
  -20
  -20
  -21
  -21
  -23
  -24
  -25
  -25
  -27
  -28
  -29
  -31
  -32
  -34
  -36
  -37
  -39
  -41
  -43
  -45
  -47
  -50
  -52
  -55
  -57
Free cash flow, $m
  -11
  -3
  -4
  -4
  -3
  -2
  0
  2
  5
  8
  11
  16
  21
  26
  32
  39
  46
  54
  63
  73
  83
  94
  106
  120
  134
  149
  165
  182
  200
  220
  241
Issuance/(repayment) of debt, $m
  0
  2
  2
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  15
Issuance/(repurchase) of shares, $m
  -2
  3
  4
  4
  3
  2
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -2
  5
  6
  7
  6
  5
  5
  4
  4
  5
  5
  5
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  15
Total cash flow (excl. dividends), $m
  -13
  2
  3
  3
  3
  4
  4
  6
  9
  12
  16
  21
  26
  32
  39
  46
  54
  62
  71
  81
  92
  104
  117
  130
  145
  160
  177
  195
  214
  234
  256
Retained Cash Flow (-), $m
  0
  -3
  -4
  -4
  -3
  -2
  -2
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
Prev. year cash balance distribution, $m
 
  32
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  31
  -1
  -1
  0
  2
  2
  3
  6
  9
  13
  17
  22
  28
  34
  41
  49
  57
  66
  76
  86
  98
  110
  123
  137
  153
  169
  186
  205
  225
  246
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  30
  -1
  -1
  0
  1
  1
  2
  4
  5
  7
  8
  10
  11
  12
  12
  12
  12
  12
  12
  11
  10
  9
  8
  7
  6
  5
  4
  3
  2
  2
Current shareholders' claim on cash, %
  100
  96.8
  92.9
  89.1
  86.1
  84.3
  83.8
  83.8
  83.8
  83.8
  83.8
  83.8
  83.8
  83.8
  83.8
  83.8
  83.8
  83.8
  83.8
  83.8
  83.8
  83.8
  83.8
  83.8
  83.8
  83.8
  83.8
  83.8
  83.8
  83.8
  83.8

Build-A-Bear Workshop, Inc. is primarily a specialty retailer offering a make your own stuffed animal interactive retail-entertainment experience. The Company's segments include direct-to-consumer (DTC), international franchising and commercial. The DTC segment includes the activities of Company-owned stores in the United States, Canada, the United Kingdom, Ireland and Denmark, and other retail delivery operations, including its e-commerce sites and temporary stores. The international franchising segment includes the licensing activities of its franchise agreements with store locations in Europe, Asia, Australia, Africa, the Middle East and Mexico. The commercial segment markets the naming and branding rights of its intellectual properties for third-party use. Its retail stores offer various merchandise, including over 30 different styles of animals to be stuffed, sounds and scents that can be added to the stuffed animals, and a range of clothing, shoes and accessories, among others.

FINANCIAL RATIOS  of  Build-A-Bear Workshop (BBW)

Valuation Ratios
P/E Ratio 134
Price to Sales 0.4
Price to Book 1.4
Price to Tangible Book
Price to Cash Flow 8.4
Price to Free Cash Flow -11.2
Growth Rates
Sales Growth Rate -3.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 16.7%
Cap. Spend. - 3 Yr. Gr. Rate 8.1%
Financial Strength
Quick Ratio NaN
Current Ratio 0.1
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 0.5%
Ret/ On Assets - 3 Yr. Avg. 6.7%
Return On Total Capital 1%
Ret/ On T. Cap. - 3 Yr. Avg. 14.6%
Return On Equity 1%
Return On Equity - 3 Yr. Avg. 14.6%
Asset Turnover 1.8
Profitability Ratios
Gross Margin 45.6%
Gross Margin - 3 Yr. Avg. 46.4%
EBITDA Margin 5.8%
EBITDA Margin - 3 Yr. Avg. 7.8%
Operating Margin 1.4%
Oper. Margin - 3 Yr. Avg. 3.4%
Pre-Tax Margin 1.4%
Pre-Tax Margin - 3 Yr. Avg. 3.4%
Net Profit Margin 0.3%
Net Profit Margin - 3 Yr. Avg. 3.7%
Effective Tax Rate 80%
Eff/ Tax Rate - 3 Yr. Avg. 14.2%
Payout Ratio 0%

BBW stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the BBW stock intrinsic value calculation we used $364 million for the last fiscal year's total revenue generated by Build-A-Bear Workshop. The default revenue input number comes from 2016 income statement of Build-A-Bear Workshop. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our BBW stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for BBW is calculated based on our internal credit rating of Build-A-Bear Workshop, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Build-A-Bear Workshop.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of BBW stock the variable cost ratio is equal to 19%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $295 million in the base year in the intrinsic value calculation for BBW stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Build-A-Bear Workshop.

Corporate tax rate of 27% is the nominal tax rate for Build-A-Bear Workshop. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the BBW stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for BBW are equal to 20.1%.

Life of production assets of 4.6 years is the average useful life of capital assets used in Build-A-Bear Workshop operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for BBW is equal to -1.4%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $99 million for Build-A-Bear Workshop - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 16.034 million for Build-A-Bear Workshop is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Build-A-Bear Workshop at the current share price and the inputted number of shares is $0.1 billion.

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COMPANY NEWS

▶ Build-A-Bear misses 3Q profit forecasts   [Oct-26-17 06:59AM  Associated Press]
▶ 5 Stocks in Limelight on New Analyst Coverage   [Sep-20-17 10:49AM  Zacks]
▶ Build-A-Bear extends PBS Kids sponsorship as it reinvests in TV ads   [Aug-04-17 07:20AM  American City Business Journals]
▶ Build-A-Bear reports 2Q loss   [Jul-28-17 01:24AM  Associated Press]
▶ Build-A-Bear reports 2Q loss   [Jul-27-17 08:14AM  Associated Press]
▶ [$$] Bullish on Build-a-Bear   [Jun-16-17 04:29PM  Barrons.com]
▶ What Makes Hibbett Sports (HIBB) a Strong Sell?   [May-17-17 08:42AM  Zacks]
▶ Build-A-Bear posts 1Q profit   [Apr-27-17 08:24AM  Associated Press]
▶ Build-A-Bear tries footwear on for size   [12:25PM  at bizjournals.com]
▶ Build-A-Bear tries footwear on for size   [12:25PM  American City Business Journals]
▶ New Strong Sell Stocks for March 9th   [Mar-09-17 09:05AM  Zacks]
▶ Billionaire investor takes large stake in Build-A-Bear Workshop   [Mar-03-17 09:35AM  at bizjournals.com]
▶ Build-A-Bear Sees Mall Traffic Declines   [Feb-27-17 01:41PM  at Investopedia]
▶ LD Micro Index Reconstitution as of February 1, 2017   [Feb-01-17 09:45AM  Accesswire]
▶ Cannell Capital Increases Bet On Build-A-Bear Workshop Inc (BBW)   [Jan-30-17 08:56AM  at Insider Monkey]
▶ Why Build-A-Bear has set sail   [Dec-19-16 01:10PM  at bizjournals.com]
▶ Build-A-Bear expands licensed products with PokĂ©mon character   [Dec-07-16 01:55PM  at bizjournals.com]
▶ Build-A-Bear opens pop-up shops at movie theaters   [Nov-10-16 06:10PM  at bizjournals.com]
Financial statements of BBW
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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