It’s been a stellar five years for Games Workshop (LSE:GAW) shareholders as the FTSE 250 company hits a 260% return this month. And this figure doesn’t even capture the additional gains from dividends paid over the years.
For a business that sells plastic miniatures for a wargaming tabletop hobby, this performance is undoubtedly impressive. Yet, looking at its latest results, the growth story looks far from over. So is now the perfect time to snap up more shares? Let’s take a look.
The power of keen customers
On the surface, the various Warhammer franchises look like a nerdy hobby. And while there’s some truth to that, it’s one that’s proven highly addictive. So much so that hobbyists are seemingly eagerly awaiting to buy the latest box sets and models, creating a cult-like following from customers.
Evidence of this behaviour was on perfect display earlier this year when Games Workshop released its Leviathan boxset for the launch of 10th Edition Warhammer 40,000. It sold out in the UK within two days and worldwide within a week.
The financial results of this release were evident in the following trading update. Games Workshop reported record sales and profits, significantly ahead of expectations. And this may have just happened again.
On 11 November, 10 Christmas Battleforces boxes for Warhammer 40,000 and Warhammer Age of Sigmar were made available for pre-order, priced £135-£140 each. Within a few hours, they too were sold out.
Considering the economic climate worldwide is still on the mend and the UK is battling a cost-of-living crisis, the loyalty that the Warhammer brand commands is exceptional. And with a steady stream of new miniatures, books, TV shows, and licensed video games planned over the next year, new and existing customers will have plenty of excuses to start buying more.
A pricy valuation
While not every investor is a Warhammer enthusiast, the quality of this FTSE 250 business hasn’t gone unnoticed. As such, the shares trade at a bit of a premium. And a quick glance at the group’s 27 times price-to-earnings (P/E) ratio proves that.
In my opinion, such a price tag might be justified, considering management’s habit of exceeding expectations and the seamlessly endless demand for its products. However, as with any growth stock, lofty valuations invite higher levels of volatility.
Overall, hobbyists seem comfortable paying for expensive Warhammer miniatures. But should economic conditions worsen, customer spending may start to deteriorate, harming sales. This would be especially problematic if management doesn’t correctly predict shifts in demand, resulting in a build up of slow-moving inventory.
Despite these risks, I think this stock remains a top-notch position within my portfolio. And I’m tempted to bolster my investment on the back of cautious optimism for what the future holds for the hobby and customer culture the brand has created.