Up 62% in 1 year! Why is the Games Workshop share price on fire?

The Games Workshop share price exploded higher at the end of last week and has now more than trebled over the past five years.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Abstract bull climbing indicators on stock chart

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The Games Workshop (LSE: GAW) share price surged 10.5% on Friday 15 September after the miniature wargames specialist released an excellent trading update.

Now at 11,500p, the stock is only a couple of quid off its all-time high. And after a 213% rise, it’s the best-performing share in the FTSE 250 over five years. Across a decade, it has turned a £1,000 investment into around £14,000.

That’s not including dividends, of which there have been many along the way. Include those and the total 10-year return from £1k rises to around £23,000!

What has been fuelling this dramatic rise? And should I buy more shares?

Trading update

In its latest announcement, the Nottingham-based company said that trading for the three months to 27 August was well ahead of its expectations. Revenue jumped around 14% from the same period last year, to £121m, while pre-tax profit is expected to be 46% higher at £57m. Licensing revenue doubled to approximately £6m.

The figurine maker, which launched the 10th edition of its Warhammer 40,000 Leviathan set during the quarter, said the strong performance was “driven by healthy growth across all channels”.

As a result, the company declared a dividend of 50p per share. This takes its dividends declared so far this financial year to £1.95 per share, up from £1.20 per share at the same point last year.

Incredible fundamentals

The shares continue to rise alongside the company’s profitable growth. Revenue of £221m in FY 2018 had more than doubled to £471m by last year. Its net profit also more than doubled over the same period, going from £59.5m to £135m.

Its median return on capital employed over the last five years is 66%. This high figure shows the business is doing a fantastic job of generating profits from its capital.

Plus, its balance sheet is immaculate, partly because it doesn’t engage in debt-fuelled acquisitions. It doesn’t need to, as it develops its own intellectual property based on its endless, imaginary worlds and cast of characters.

Looking forward, I think the planned Warhammer films in partnership with Amazon Studios could bring many more fans into its fantasy-world ecosystem.

Will I add to my holding?

Games Workshop currently sports a market cap of £3.8bn. If the share price momentum continues, it’ll be a FTSE 100 firm before too long. And I’d say a welcome addition too, given its quirky and unique characteristics.

Still, trading at around 26 times this year’s forecast earnings, the stock is quite pricey. Any setbacks to growth, earnings or its licensing deal with Amazon could knock the shares quite badly.

Plus, it should be remembered that the company operates in a niche market, albeit a very profitable one. The firm repeatedly highlights this: “We understand that what we make may not appeal to everyone“.

So we don’t know when the firm could max out its market opportunity and encounter growth obstacles. Personally, I expect the company to continue growing profitably for many years, exploiting opportunities in Asia and elsewhere. But that’s not guaranteed.

Nevertheless, I’m a big believer in adding to my winners, and this growth stock has certainly been one of those. So I’m open to increasing my holding. I’m just waiting for an appropriate dip in the share price to make my move.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Ben McPoland has positions in Games Workshop Group Plc. The Motley Fool UK has recommended Amazon.com and Games Workshop Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Person holding magnifying glass over important document, reading the small print
Investing Articles

3 UK stocks I reckon could benefit from the upcoming general election

As the general election hurtles towards us, this Fool wonders which UK stocks could benefit, and focuses on three picks…

Read more »

BUY AND HOLD spelled in letters on top of a pile of books. Alongside is a piggy bank in glasses. Buy and hold is a popular long term stock and shares strategy.
Investing Articles

At 11%, this dividend share pays the biggest yield in the FTSE 100

When a dividend share offers a big yield, we need to be cautious of the risks. But I reckon this…

Read more »

British Isles on nautical map
Investing Articles

I reckon Hiscox shares could be one of the best bargains on the FTSE

I've been investing in FTSE companies for years, but after a major decline I've not seen a company with as…

Read more »

Grey Number 4 Stencil on Yellow Concrete Wall
Investing Articles

4 reasons I’d still buy National Grid shares in a heartbeat despite the recent wobble!

As National Grid shares plunged on the news of a right issue, I’m not flinching, and reckon it's a top…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

After gaining 45% in 12 months, is the Amazon share price now overvalued?

Our author thinks the Amazon share price might be too high. While the long-term future of the business looks bright,…

Read more »

Investing Articles

2 hot dividend stocks I’d buy and hold for 10 years

Our writer reckons these two dividend stocks could help her bag juicy dividends for years to come and explains why.

Read more »

British Pennies on a Pound Note
Investing Articles

2 dividend-paying penny shares I’d happily own

These two penny shares have caught our writer's eye for a combination of income prospects now and business growth potential…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

This FTSE 250 share looks like a bargain to me!

This FTSE 250 share has seen its price tumble due to chaotic local economic conditions in a key market. But…

Read more »