Due to macroeconomic pressures and Covid-19 disruptions, many FTSE growth stocks have seen their share prices drop recently. This has created potential buying opportunities for some excellent stocks.
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Games Workshop is not your typical gaming stock. When I hear the term ‘gaming,’ I instantly think of the lucrative video game market. Games Workshop is a designer and manufacturer of the popular Warhammer franchise and it has an enormous following worldwide. The franchise began with miniature figurines and fantasy figures to be used with the table-top strategy game. Its popularity exploded, propelling GAW shares to new heights in recent years.
As I write, Games Workshop shares are trading for 7,810p. At this time last year, the shares were trading for 10,500p, which is a 25% drop over a 12-month period. The shares reached as high as 12,200p in early September, which means at current levels, the shares have dropped close to 35% since then.
Recent issues and risks
Looking at Games Workshop’s recent performance and issues, I can understand why the share price has dropped. Macroeconomic issues, caused by the pandemic such as rising costs of materials and supply chain issues have affected its profit margins.
There is a real risk that these current pressures are long-lasting and could have a real impact on future margins, as well as performance and returns. This could continue to drive down the Games Workshop share price even further.
A FTSE growth stock I would buy
I like Games Workshop as a growth option for my holdings for a few key reasons. Firstly, it has a good track record of recent and historic performance, although I understand that past performance is not a guarantee of any future performance. I can see that revenues have increased by an annual average of close to 25% for the past five years.
Coming up to date, a half-year report announced two weeks ago was still impressive despite a squeeze on profit margins as mentioned earlier due to macroeconomic pressures. Revenues and royalties were up compared to the same period last year. Games Workshop also declared a dividend of 100p per share, which is also up from the same period last year.
This leads me on to my next point. Games Workshop pays a dividend regularly due to solid performance and these returns could make me a passive income. GAW’s dividend yield currently stands at just over 3%. This is close to the FTSE 100 average of 3%-4%, despite the fact Games Workshop resides on the FTSE 250.
Games Workshop’s business model is also something that attracts me to it. As well its burgeoning figurines business, which is its bread and butter, it has also diversified. It makes royalties from licensing agreements on video games. This should help growth continue and even accelerate in the long term, in my opinion.
Overall, I would add Games Workshop shares to my holdings at current levels. It looks cheap right now with a price-to-earnings ratio of 21. Despite recent issues, I still think it is an excellent FTSE growth stock with more room to grow yet. It has a good track record of performance and pays a dividend, which is a bonus.