YB new stock pitches (Fri, Jul 10)

Build-A-Bear Workshop (NYSE: BBW), a global experiential plush toy retailer with 669 locations across 37 countries, is a long at ~$31/share with a price target of ~$65 (+117%) based on 9x FY28 EBITDA, achievable in under two years. Mr. Market prices BBW as a post-COVID mall retailer with peaked earnings entering terminal decline; shares are down over 50% YTD following weaker specialty retail sentiment, revenue misses, longtime CEO Sharon Price John's retirement (new CEO Chris Hurt assumed the role June 2026), 1Q27 marking the first revenue decline in eight quarters and first negative traffic quarter in seven (retail traffic -7%, e-commerce demand -26% on AI-driven search changes), a cut to FY27 revenue guidance, and FY26 tariff costs (~$11M). The TTM P/E has compressed over 50% YTD, the EBITDA multiple is near a two-year low, and short interest is near a record ~25% of float. The thesis holds that 1H27 marks the operational bottom, with a low bar into the 2Q27 print (08/27)—management's weak guidance was extrapolated only 3.5 weeks into the quarter, while subsequent catalysts (a full quarter of new Hello Kitty stores, Toy Story 5 launch, strong graduation demand, NBA/World Cup sales, Summer of Mystery promotions, and alt-data showing a Q1 bottom with improving traffic from late May) suggest even a modest beat could spark a short squeeze. Additional support comes from social arbitrage (wearable plush, $20 bag charms 'on fire,' Pokémon/Sanrio collector demand, best North American Valentine's Day ever, 20K+ Birthday Treat Bears sold weekly, teens/adults now ~40% of revenue), a strong 2H27 slate (world's largest store at ICON Park Orlando, 30th anniversary, refreshed Harry Potter, Halloween, Black Friday) and FY28 licenses (Shrek 5, Spider-Man, Bluey, Avengers). The capital-light mix shift is key: Commercial revenue grew at a 54% CAGR since 2020 (+43.6% Y/Y in 1Q27), with partner locations at 106% ROIC vs. 21% for retail and a 53.1% pre-tax margin vs. 9.2% for DTC, plus International Franchising (26.4% pre-tax margin, 49% ROIC, growing from 112 toward a 300-location target); over 40% of the footprint is already outside malls. A $13.2M IEEPA tariff refund supports FY27 earnings, while zero debt, $26M cash, stable capex, and no M&A appetite fund buybacks that have cut shares over 25% from the 2019 baseline and are accelerating. The base case projects 4.1% revenue CAGR through FY29, 83 bps of pre-tax margin expansion, and 10.3% diluted EPS CAGR. Risks include e-commerce/AI search weakness, soft consumer sentiment and mall traffic, tariff reinstatement, execution on seasonal launches, and over-extending wholesale at the expense of the core experiential model, with a bear case of ~20% downside to ~$24/share.

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Software Service, Inc. ($3733.T) is a Japanese provider of electronic medical record (EMR) systems for hospitals, offering all the attributes of a high-quality software business: mission-critical system of record, high switching costs, and compliance-heavy operations. Systems are customized to each facility's workflows with on-site implementation and clinical staff training, and since any migration causes operational disruption, retention is effectively 100% absent hospital closures. Compliance with Ministry of Health guidelines for data standards, security, and interoperability—combined with conservative Japanese healthcare procurement culture—makes the business exceptionally sticky and resistant to being 'vibe-coded' away. The company broadcasts sales monthly on its website: sales are up 20%+ through end of May and backlog is up 44%, yet the stock is off 15%+ YTD despite already being cheap, and benefits from a government-mandated tailwind via Japan's Medical DX initiative. Remarkably, the EV is now lower than in 2018 despite the business being 3x larger. At ¥11,200 on 4.9M shares, the market cap is ¥55B; with ¥20B net cash, the EV is ¥35B. The company grows at ~15%, is profitable every year with non-existent stock comp, earned ¥1,168 per share (¥6.1B, up 100% in four years) last year, and with sales up 20% YTD net income should run above ¥7.1B this year—roughly 7x EPS (4.9x ex-cash). Management bought back 5.7% of shares outstanding on a single day in March, and the debt-free 110,000 ft² Sanno HQ is likely worth two-thirds of the EV. Two other similar stocks are cash-rich, profitable every year with teens earnings growth and sub-6x earnings net cash.

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RS Technologies (3445.T), a profitable, growing Japanese semiconductor wafer reclaim provider, is up over 180% since the author's August 2024 pitch and remains the author's top holding. The company owns a 40% stake in listed Chinese government joint entity Gritek/Grinm, a Prime wafer manufacturer whose profit primarily comes from 8' silicon carbide wafers (used in cars, microwaves, and fridges), with hopes of expanding into 12' silicon carbide in 2027 and logic/memory silicon prime wafers (used in AI chips, smartphones, and robotics) in 2028. RS has historically traded for less than its Gritek stake, which is central to the thesis. Over the past month, Gritek's valuation nearly 4x'd from 13.4 Yuan in late March to 46 Yuan, reaching a 274 P/E (versus a 74.57 industry average), likely because investors are modeling a mid-late 2027 wafer shortage; Gritek management issued a warning of short-term decline risk given the rapid increase. This widened the sum-of-the-parts gap: Gritek's stake is now over double RS's market cap plus a net cash position. RS's 36-month post-IPO lockup on selling Gritek shares expired in November 2025, and RS liquidated 12.5 million shares in February 2026, proving it can sell. Further sales could lock in profits, close the valuation gap, and fund wafer reclaim expansion, potentially creating a short-term arbitrage trade as the market prices in the cash. As a significant shareholder, RS must file 15 days prior to selling and quantify the amount. Risks include Gritek's extreme valuation volatility (could halve or go limit up in a day). The author views the resilient core reclaim business as the foundation of the thesis, with Gritek a 'free lottery ticket,' and is holding while monitoring the 15-day sale filings.

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