I think this FTSE 250 stock is simply too good to miss

This Fool already owns this FTSE 250 stock but is keen to increase his position. Here, he explains why he thinks it’s too good to pass on.

| More on:
Young black colleagues high-fiving each other at work

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.

I love FTSE 250 stocks. The index is home to a number of high-quality businesses with serious growth potential. One I already own is Games Workshop (LSE: GAW).

The business manufactures tabletop miniature wargames, best known for its Warhammer brand.

Here’s why I think it’s so appealing.

More of the same, please

As a shareholder, I’m hoping Games Workshop will be able to replicate the strong performance it’s posted in recent years. In the last five years, the stock’s shot up 209.4%. Since 2008, it’s up a mega 8,000%. That’s an impressive return.

Of course, I must note that past performance is no indication of potential future returns.

A market leader

Even so, I think there are plenty of reasons to believe the stock can continue to rise.

Firstly, the business has a strong economic moat. It doesn’t really have any competition. Granted, as the miniature wargames industry has become more lucrative, larger names such as Disney have begun to enter the space.

However, the business has an incredibly loyal customer base. And what’s also impressive is Games Workshop’s ability to keep players in its ecosystem. One reason for this is that it allows fans and users to join and interact with each other in its stores. Despite potential competition, this in-house customer experience elevates Games Workshop, in my opinion.

A growing dividend

There’s also a 4.5% lucrative dividend yield. That’s above the FTSE 250 average of 3.4% by some margin.

Of course, dividends are never guaranteed. Yet the firm only uses “truly surplus cash” to pay shareholders, so I’m confident of receiving a payment.

On top of that, its dividend has seen major growth in the last decade. Last year alone it was hiked 62%. As an income investor, that’s what I like to see.

An exciting future

What also excites me is the plans Games Workshop has to continue expanding. The business is split up into two operating segments, namely core revenues and licensing. It’s seen consistent growth in the former over the last eight years. But I’m more excited about the potential for the latter business.

This is largely due to its recent deal with Amazon. As part of the agreement announced last year, its Warhammer universe will be developed into film and TV Content. Amazon Prime has over 200m users worldwide so this will expose the brand to an abundance of potential new customers.

Is it expensive?

Some market spectators may say trading on 22 times earnings means the stock looks expensive. It has also had to up its prices in recent times due to rising inflation. While the firm remains the frontrunner in the industry, I’m cautious that in the years to come it’ll face heightened competition from more businesses attempting to grab a slice of the market.

That said, its latest deal with Amazon is a prime example of how it’s diversifying its revenue streams to continue growing.

I’m excited to see what the future has in store for the business. And I feel it can keep going from strength to strength. If I had the cash, I’d pick up some more shares.

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. Charlie Keough has positions in Games Workshop Group Plc. The Motley Fool UK has recommended Amazon 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

pensive bearded business man sitting on chair looking out of the window
Investing Articles

Would a stock market crash matter?

Christopher Ruane explains why a stock market crash could turn out to be positive, not negative, for a private investor…

Read more »

Investing Articles

Has the Rolls-Royce share price peaked?

After a strong 2023 performance and (so far) in 2024, the Rolls-Royce share price has stuttered in recent days. Christopher…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

Turning a £20k ISA into a £13,900 yearly second income? It’s possible!

By investing a £20k ISA now using certain basic principles, our writer thinks he could set up a second income…

Read more »

Fans of Warren Buffett taking his photo
Investing Articles

With no savings, I’d follow Warren Buffett’s number one rule to build wealth

Can this one piece of Warren Buffett wisdom really help our writer as he aims to build wealth in the…

Read more »

Storytelling image of a multiethnic senior couple in love - Elderly married couple dating outdoors, love emotions and feelings
Investing Articles

A second income of £1k a month from just £10 a day! How would I do that?

Mark David Hartley considers how to build a second income stream starting from just £10 a day. Is £1,000 a…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

Turn £8,900 into a £24k annual passive income? Here’s how!

Christopher Ruane applies some investing lessons from billionaire Warren Buffett when explaining how he'd aim to earn sizeable passive income…

Read more »

Young Caucasian woman holding up four fingers
Investing Articles

7%+ dividend yields! 4 FTSE 100 shares for investors to consider buying in April

These FTSE shares offer dividend yields comfortably above the index average of 3.7%. Here's why they could be good passive…

Read more »

Dividend Shares

£10k in an ISA? Here’s how to generate a ton of passive income

Passive income can provide a lot more financial freedom and security. Here’s an easy way to generate some within an…

Read more »