Thursday, June 29, 2006


My thanks for the responses to recent emails. The one expressing depression about the stock market shows that readers, like the rest of the public, struggle to stay positive during a market correction. Of course, being positive when others are negative is a major part of being a successful investor.

The suggestion to buy Build-a-Bear, made by a good friend and frequent reader is an interesting idea. I do not like the idea but it is still an interesting one. Here is a company that appears to be attractively valued. For example, its price to sales, price to book and price to cash flow are all about half or less than industry norms. The company enjoys high margins and has been a rapid grower for several years.

On the other hand, it is just the opposite of the kind of company that I have said is likely to lead the next rally. It is the ultimate consumer discretionary item. Having been in Myrtle Beach for the past couple of weeks, I can tell you that consumers are cutting back on discretionary spending. The beach is relatively uncrowded and the lines are not long at the movie theaters or restaurants.

BBW has stated that this quarters earnings will fall to the low side of guidance. Recently one analyst lowered estimates for the whole year. As you may know, I don't place much faith in the estimates offered by analyst but down grades are not to be taken lightly; the numbers could be way off but the direction appears to be down.

This spring, insiders were dumping the stock. In the past few weeks, one board member has bought a few shares.

Since coming public, the stock has traded into the mid 30's a couple of times and down to the low 20's a couple of times. Right now, at $21.20 it is near the bottom of the range.

My thanks to my good friend for mentioning this stock. It is not one that I will buy but I enjoyed giving it the once over.

As a retail stock comparison, WMT has about the same price to cash flow. My bet is that a big company like WMT will out perform BBW over the next 5 years.