When looking for the best shares to buy now, the first place I start is my personal watchlist. It contains several enterprises I believe could be promising long-term investments, but either still have something to prove, or were simply trading too expensively at the time.
In mid-2021, when I took an in-depth look at Games Workshop (LSE:GAW), it was the latter that applied. And it seems my hunch about its lofty valuation was spot on, given its market-cap halved within the following 12 months. With the share price down massively, the firm moved from my watchlist to my buylist. And in December 2022, I added some shares to my portfolio.
Since then, the stock price has gained significant positive momentum. And on the back of continued solid results, I’m now tempted to top up my existing position. So let’s take a closer look at what this company does, and why I believe it’s worthy of further investment.
One of the best shares around?
Games Workshop is behind the world’s most popular tabletop game, Warhammer. Its core revenue stems from designing, manufacturing, and selling miniatures along with additional ancillary products such as paint and books.
Investing in a hobbyist business may seem like an odd choice, given we’re in the middle of a cost-of-living crisis. After all, Warhammer products aren’t cheap. And with consumer spending going down the drain, demand will likely fall in the near term, right? Well, apparently not.
Looking at its latest interim results, core revenues are up by double digits, reaching £212.3m, driven by increasing order volumes as well as price hikes. And that’s despite a challenging sales environment in China.
Profit margins have taken a slight hit, courtesy of rising raw material and logistical costs. But with inflation winding down and supply chain disruptions being repaired, both of these external issues have started to resolve themselves. And with new projects in the pipeline, including a recently-signed deal with Amazon to develop a Warhammer 40,000 TV series, the long-term potential seems impressive.
That’s why I think Games Workshop could be one a great stock to buy today.
Risk vs Reward
The firm has a lot going for it. Its products are immensely popular with a powerful, globally-recognised brand that, despite many attempts, has yet to be disrupted. This has led to a relatively consistent expansion of its top and bottom line, fuelling a 3.1% dividend yield. But as impressive as Games Workshop might be, it’s far from risk-free.
As previously mentioned, the bulk of its revenue stream stems from the sale of plastic figurines. But with 3D printing technology becoming increasingly cheaper and readily available to consumers, a massive threat to its income is individuals replicating products in 3D modelling software and printing them at home.
The company has begun to clamp down on this external threat. But as household budgets get tighter, the temptation to find a cheaper option to acquire Warhammer could increase, potentially compromising the firm’s long-term cash flow.
As concerning as this threat is, the firm’s efforts to keep customers buying official products seem to be doing the trick. And with the share price still significantly down from its 2021 highs, Games Workshop remains one of the best stocks out there, to my mind.
