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Motley Fool Issues Rare “All In” Buy Alert

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Shares of Build-A-Bear Workshop ( BBW -18.29% ) , the retailer of build-your-own stuffed toys, fell a dramatic 23.5% in early trading on March 10. Roughly 90 minutes into the market day the stock was still off by 18% or so. The reason for the decline was most likely the company's fiscal fourth-quarter 2021 earnings release.

From a big-picture perspective, the quarter was a good one. Sales of $130 million were up a huge 38.8% compared to the same quarter in 2020. And, perhaps more interesting, they were up 24.3% from the same period of 2019, prior to the pandemic. That said, sales in the quarter were negatively impacted by an estimated $1 million because of pandemic disruptions, but overall sales were clearly in recovery mode. The same story held true for the full fiscal year, with sales up 61.2% compared to 2020 and 21.6% compared to 2019.

The good news continued on the bottom line, as well, with adjusted earnings per share in the fiscal fourth quarter of $0.97 handily beating the adjusted $0.58 it earned in 2020 and $0.39 in 2019. For the full year Build-A-Bear reported adjusted earnings of $2.37 per share, up from a loss of $0.92 in 2020 and just a penny-a-share profit in 2019. The company beat Wall Street expectations on both the top and bottom lines in the quarter, as well. Normally you would expect a stock to go up based on performance like this, but there's more to this story than meets the eye.

The problem is twofold. First, the stock has risen dramatically since the pandemic driven bear market in 2020. Even including today's decline, the stock is up around 990% or so from April 2020. So investors have baked in a lot of good news here. Meanwhile, the company noted that, as it looks to 2022, it has to consider "inflationary pressure and the potential impact of stimulus on consumer spending in the prior year." In other words, costs could be higher and sales could be lower going forward. 

At this point management isn't offering a full-year forecast and only suggests that the fiscal first quarter of 2022 will "exceed" the same quarter in 2021. That's not much to go on, and after such a huge run for the stock, it isn't surprising that investors might be getting a little nervous. That dour mood was likely amplified by the broad-based declines seen in early trading. 

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