Build-A-Bear Workshop v2.0: Postmortem
$BBW: Where does it go from here?
Current Positioning
BBW tends to experience immediate sell-offs after reporting their earnings results. These sell-offs are often driven by larger block sales, which significantly affect the trading dynamics of its relatively small float of 13.44 million shares. I swiftly re-opened a new BBW position on this pull back before Powell’s Jackson Hole speech and after. As expected, $VIX pulled back subsequent to his nothing-burger speech leading to Vega to crush.
I opened ‘24 ITM LEAPS to capitalize on higher delta. See the chart below for my positioning on 60-min time frame for the past two months.
For reference, the OTM '24 LEAPS position I opened in June was a successful trade, yielding over a 150% return from early June to August. Nonetheless, it was not for the faint of heart. The wide spread between bid and ask prices, coupled with a lack of liquidity, often led to erratic movements within the spread. In contrast to my usual focus on deep ITM strikes, this trade aimed to capitalize on the low implied volatility and capture the highly probable surprise in the Q2 ER results. The trade was indeed successful, though far from stress-free.
Where does Build-A-Bear Workshop go from here?
I have a few educated guesses, but the trade requires time and patience, regardless:
Staircasing: Technically, I hope that it will staircase between the $26–30 range over the next few months, allowing for consolidation and the shaking out of weak holders before the Q3 ER.
Sell-side coverage: Currently, Build-A-Bear hasn't received much attention from sell-side analysts. Once discovered and initiated, I believe this will result in an immediate 10% boost from the news.
Acquisition: With a P/E NTM of 6.67x, it's hard to ignore its value proposition, especially when coupled with its moat in the omnichannel space. If I were in-house counsel for Hasbro or Mattel, I would propose buying out Build-A-Bear to align their IP portfolios. However, this is the least likely scenario given the current higher-rate macro environment.
Holding and waiting.
I've shared a series of posts about Build-A-Bear Workshop over the past several weeks, and now it's time to let it marinate and consolidate within this range before breaking out of the $30 threshold.
As Livermore has said, “a man must study general conditions, to seize them so as to be able to anticipate probabilities.”
Disclaimer: I have a long position in BBW, with in-the-money LEAPS expiring on January 19, 2024.