Burry believes Build-A-Bear shares are undervalued. What's stopping him from increasing his stake?

Michael Burry has returned to his analysis of Build-A-Bear—a company whose stock he had called a “hot potato” following its August crash. The investor now sees it as an undervalued business, though he acknowledges that the company still has a few tough quarters ahead. On October 29, the day Burry published his analysis on his Substack blog, Build-A-Bear’s stock rose nearly 10%.

Burry bought shares in a brand that lets customers design their own teddy bear from scratch shortly before the company released a weak quarterly report. Following the report, the stock price plummeted 27.3%. The investor decided not to sell the shares but to wait for detailed financial statements before reassessing the investment, and in September announced that he had increased his position. In his latest analysis, Burry evaluated the company using an analytical framework he had developed for Scion Capital employees back in 2006. His conclusion: the market is too focused on Build-A-Bear’s current problems and underestimates how much its business has changed.

According to the investor, the market’s main mistake is viewing Build-A-Bear as a “mall dinosaur.” The company still offers workshops where customers can create their own stuffed animals, but its business model has changed. While one in five locations was unprofitable in 2012, by 2021 at least 97% of stores in North America were turning a profit, writes Burry.

The company also began opening small stores and retail locations in partnership with third parties, who cover a significant portion of the costs. According to data from a 2023 presentation cited by Burry, the investment in an average company-owned store paid for itself in about two years.

At a price of about $25, which was the figure Burry was targeting, the forward P/E ratio—the ratio of the stock price to expected annual earnings per share—was about 7, and the EV/EBITDA ratio (the ratio of enterprise value to earnings before interest, taxes, depreciation, and amortization) was less than 4. The company has no financial debt, pays dividends, and repurchases its own shares. Since 2021, the number of shares outstanding has, according to his calculations, decreased by about a quarter.

Burry estimates his own IV15 valuation benchmark—the purchase price implying a 15% average annual return over a 15-year horizon—at $23–32, depending on the scenario. After rising to $27.48 in trading on October 29, the stock is already in the middle of this range.

The investor makes no secret of the business’s weakness. In the second quarter, the company’s comparable sales fell by 9.5%, according to Burry, and the direct sales segment’s margin dropped from 27.8% to 21.4%. The company was also unable to repeat its major supply program for Walmart and lowered its revenue forecast for the second time this year. As a previous Oninvest analysis showed, the financial statements did not reveal any major one-time write-offs that could explain the weak quarter.

At the end of the quarter, Build-A-Bear had $14 million in cash, compared with $39.1 million a year earlier. The company attributes the decline primarily to share repurchases and the timing of capital expenditures.

Data on consumer demand remains mixed. In a Northland report dated October 16, analyst Greg Gibas cites Bloomberg Second Measure data: after a 7% increase in August, customer spending at Build-A-Bear stores fell 21% year-over-year in September. Meanwhile, Placer.ai reported a 13.8% increase in foot traffic and a 3.7% rise in average ticket size.

The Bloomberg Second Measure indicator points to a possible 6.6% decline in retail sales in the third quarter, compared with the approximately 3% decline projected by the consensus. However, Northland warns that this indicator has accurately predicted the direction of changes in only five of the last eight quarters.

Northland maintained its “Buy” rating on Build-A-Bear shares and its price target of $40. The price target implies that the stock could rise by approximately 45% from its closing price on October 29. The price target corresponds to an EV/EBITDA ratio of about 6 based on the 2027 forecast, compared with 9.4 for comparable companies (Northland’s report is available at the editorial office).

The next earnings report, which, according to Nasdaq, is expected on December 3, 2026, will show whether Build-A-Bear can halt the decline in sales and margins and whether the company will be able to generate the earnings projected in its financial forecasts.

According to MarketWatch, the company's stock has three "Buy" ratings from Wall Street analysts. The average price target is $45, nearly 64% above the last closing price.

This is not intended as individual investment advice.