I firmly believe that Games Workshop (LSE: GAW) has been THE standout growth stock of recent years. However, in the past few days, its shares have fallen enough to grab my attention. Let’s take a look at what’s happened, and decide if there’s a potential buying opportunity here.
Flying high
The Warhammer owner has been on a spectacular growth journey in recent years. It’s plain to see from performance updates as well as its share price trajectory in the past couple of years why the business is on the up.
As I write, Games Workshop shares are trading for 9,025p. Over a 12-month period, they’re up 23% from 7,295p at this time last year. Over a two-year period, they’re up 195% from 3,055p.
A half-year trading update released last week sent the shares falling from 10,600p to current levels.
A speed bump or time to exercise caution?
Let’s start by breaking down Game Workshop’s update. Revenue increased by 11% and sales for the first quarter were up by 14%. However, it seems that Q2 was less fruitful.
In addition to this, licensing revenues have dropped slightly compared to the same time last year. Pre-tax profit grew by 12% but this is lower than expected after a stellar Q1. I reckon this was to do with the fact it launched its Leviathan box set, which probably meant a surge in sales for Q1, and a relative drop off in Q2, which is understandable. Plus, licensing-related sales have historically been up and down for the firm, so I’m not too worried on that front.
Personally, I don’t think this recent trading update represents too much cause for concern. Some volatility was to be expected during the current economic outlook, in my opinion. However, to date in 2023, Games Workshop shares have largely been unaffected.
For me, there’s still a solid investment case. This share price drop has just presents a buying opportunity, if you ask me. However, the shares still look a tad expensive on a price-to-earnings ratio of over 21. They could dip again if similar updates to last week’s were to occur again in the near future.
I’m more buoyed by Games Workshop’s passive income opportunity linked to its impressive growth and consistent track record of performance. A dividend yield of 5.3% is attractive and it looks well covered by earnings too. Of course, I’m conscious that dividends are never guaranteed and past performance is not an indicator of the future.
Another plus is that a recent programming deal with Amazon could secure a new source of revenue for this impressive growth stock.
My thoughts
I reckon this is very much a blip for Games Workshop in what’s been a funny old year for the stock market as a whole.
If the shares dip again and I have the investable cash, I’ll definitely look to buy some shares for my holdings. I think Games Workshop’s race has not been run just yet, and it still has some way to go yet, which is very exciting from an investment perspective.
I’ll be watching the journey with a keen interest, and waiting for my opportunity to get in on the action.
