I reckon these shares, potentially 20% undervalued, are Warren Buffett’s type of investment

Oliver Rodzianko thinks Games Workshop is an absolutely stellar investment. As it’s potentially undervalued, he reckons Warren Buffett would agree.

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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.

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Investing like Warren Buffett certainly isn’t easy. After all, he’s considered one of the best investors of all time.

However, with the right mindset, I think it’s possible to discover companies that he would consider good investments. It takes an understanding of value investing, which is buying shares at lower than what they are worth intrinsically. Additionally, it requires finding businesses with a large business moat. That means operations that are difficult to replicate.

I think Games Workshop (LSE:GAW) fits the bill. I’m a shareholder, and here’s why I keep adding to my stake in the organisation over time.

A strong business moat

Buffett once said, “In business, I look for economic castles protected by unbreachable ‘moats’.”

This highlights the legendary investor’s strategy of looking for companies with durable competitive advantages. This can come in many forms, including brand strength, unique technology, regulatory licenses, or high switching costs for customers.

For Games Workshop, its brand strength is undeniably its biggest asset. But also significant is that its customers have invested time and money into building their tabletop gaming world with friends. Therefore, switching out to another provider seems almost silly. Everyone is at the Games Workshop, so why go elsewhere?

A wonderful valuation

It’s very rare for me to find a company that sells at a discount to its intrinsic value, but that is also growing at a highly competitive rate. Yet, Games Workshop ticks both boxes.

Over the past 10 years, its shares have risen 1,872.62%. Also, its earnings have grown at an average annual rate of 32.3%.

But even more important to me is buying continued growth at a decent price. To do this, one of the favoured methods by investors worldwide, and a method spoken positively on by Buffett himself, is discounted cash flow analysis.

By forecasting a company’s future earnings and discounting this back to present-day value, I can get an idea of what a company is worth intrinsically.

Doing this for Games Workshop, I came to the conclusion that it could be 20% undervalued. Now, I have to remember that my estimation is not a science, and other analysts could come to different conclusions. Therefore, it’s always wise that I incorporate a range of perspectives into an investment decision.

Investment risks

While I have a very favourable view of Games Workshop, and I believe I will be a shareholder for many decades, I can see potential risks related to its ability to continue growing. As such a unique entertainment experience, the firm may struggle to bridge the gap to a wider audience.

The combat this, the firm is planning to expand internationally more aggressively. While most of its revenue comes from North America, Europe, and the UK at this time, it has only minimal operations in Asia and other parts of the world. There is no guarantee that these more divergent overseas markets will be as responsive to what Games Workshop is offering.

Long-term holding

Buffett is famous for being a long-term investor, and I try to be the same. By putting my money into great, growing businesses with strong business moats and buying at good value, I’m certain my financial future is more likely to be bright.

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.

Oliver Rodzianko has positions in Games Workshop Group Plc. The Motley Fool UK has recommended 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.

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