Build-A-Bear Workshop, Inc. (NYSE:BBW) shareholders that were waiting for something to happen have been dealt a blow with a 26% share price drop in the last month. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 23% in that time.

Following the heavy fall in price, given close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 15x, you may consider Build-A-Bear Workshop as a highly attractive investment with its 3.9x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

Build-A-Bear Workshop certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

See our latest analysis for Build-A-Bear Workshop

Is There Any Growth For Build-A-Bear Workshop?

There's an inherent assumption that a company should far underperform the market for P/E ratios like Build-A-Bear Workshop's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 67% last year. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

This is in contrast to the rest of the market, which is expected to grow by 9.4% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Build-A-Bear Workshop's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

What We Can Learn From Build-A-Bear Workshop's P/E?

Build-A-Bear Workshop's P/E looks about as weak as its stock price lately. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Build-A-Bear Workshop maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Having said that, be aware Build-A-Bear Workshop is showing 1 warning sign in our investment analysis, you should know about.

If you're unsure about the strength of Build-A-Bear Workshop's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.