Shares of toy company Build-A-Bear Workshop (NYSE: BBW) jumped out to all-time highs on Thursday after it reported financial results for the third quarter of 2024. As of noon ET, Build-A-Bear stock was up an impressive 18%, and it has now nearly doubled in value year to date.
The business is still humming along
After years of decline, Build-A-Bear Workshop has turned things around in recent years, unlocking both growth and profits, much to the excitement of its shareholders. In Q3, the company grew revenues 11% year over year to $119 million, which is ahead of what investors had expected.
In addition to strong sales, Build-A-Bear's net income jumped a whopping 30% to $10 million. And this is a big deal for investors. This isn't a company that is growing by leaps and bounds. It's a simple business that's profitable and that returns a lot of capital to shareholders.
For instance, Build-A-Bear's dividend has been rising in recent years, and it currently has a yield over 2%, which isn't bad. Moreover, the company is authorized to buy back $97 million in stock, which is a lot considering its market cap is only $600 million. Rising profits give management more breathing room to reward shareholders while still investing in the business.
How big can this business get?
One thing to watch with Build-A-Bear is its plan for expansion. The company runs its own retail locations, but it also franchises and shares operations with partners. In total, it had planned to open 50 new locations this year, but it now expects 65. It had 525 locations at the start of the fiscal year.
In my opinion, Build-A-Bear has some limits on how big it can be and needs to be careful not to expand too much, too fast. It's a small business, and profits are currently good. But shareholders will want to watch margins in 2025 to make sure new locations are pulling their weight. If they are, then Build-A-Bear stock could still be undervalued today.
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Jon Quast has no position in any of the stocks mentioned. The Motley Fool recommends Build-A-Bear Workshop. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
