Is this the best stock to invest in right now?

Roland Head explains why he likes this FTSE 250 business so much and wonders if it could be the best UK stock to invest in today.

| More on:

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.

What’s the best stock to invest in right now? It’s a tough question with no single correct answer – investing in shares always carries some risk. But I do have a company in mind.

In my view, this business has some excellent assets and great management. It has also created a lot of value for its shareholders – its share price has risen by more than 1,500% over the last 10 years.

I think this growth could still have further to go. As I’ll explain, some of the growth opportunities I can see for this business are only just starting to open up.

An unusual niche business

The company in question is FTSE 250 wargaming specialist Games Workshop (LSE: GAW), which produces the Warhammer range of miniatures.

At first glance, this may seem an unlikely choice. And I have to admit that I’m never likely to be a customer.

However, Games Workshop doesn’t need all of us to be customers. The company’s success is built on an army of long-term fans who make regular purchases and also participate in the wider Warhammer ecosystem.

The nature of the hobby means that customers tend to be sticky. Once they’re hooked, they may be on board for decades. Games Workshop’s stores are another part of its success story – they are typically run by a single staffer who is also likely to be an enthusiast.

This business model supports an operating profit margin of more than 30% and has helped profits double since 2018.

Growth opportunities + risks

There are only a certain number of people in the world who will ever want to play Warhammer. But there are many more who might be interested in video games or television series built around the company’s unique intellectual property.

Licensing its stories for games and television is a new area of growth for Games Workshop. I think it could become very lucrative. A recent deal with Amazon has the potential to be a long-term earner, in my view.

Of course, no stock’s a guaranteed winner. Although I think that Games Workshop’s strong profitability does justify a premium valuation, the shares’ price-to-earnings ratio of 21 doesn’t look especially attractive to me.

Management risks are another concern. Although I think CEO Kevin Rountree has done an outstanding job, Games Workshop wasn’t doing so well before he took charge in 2015. What if he leaves?

Buy it now?

So is Games Workshop the best UK stock to invest in right now? That depends. For me personally, I’d want to see a more depressed valuation to offset some of the risks I’ve mentioned above.

But there are plenty of other investors out there who will tell me that it makes more sense to focus on quality and not worry so much about price. And they could be right.

The good news is I’m certain there are plenty of other UK shares out there with attractive price tags and the potential to deliver good performance. Some of them are in my portfolio already and I have my eye on several other new purchases.

Despite the uncertain economic outlook, I’m invested in UK shares for the long term.

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. Roland Head has no position in any of the shares mentioned. 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

Asian man looking concerned while studying paperwork at his desk in an office
Investing Articles

Should I increase my stake in Legal & General or buy great value Aviva shares instead?

Aviva shares have had a strong year, which is bad news for Harvey Jones who bought FTSE 100 rival Legal…

Read more »

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

If I’d bought Lloyds shares a year ago, here’s what I’d have now

It looks like the value of my long-held Lloyds shares is moving me into profit in 2024. Are the UK's…

Read more »

Investing Articles

Here’s how I’d target a £5,900 second income by investing £50 a week

We don't need a huge pile of cash to earn a second income. Here's one way I'd aim for it…

Read more »

Grey cat peeking out from inside a cardboard box in a house
Investing Articles

Recently released: May’s small-cap stock recommendation [PREMIUM PICKS]

We believe the UK small-cap market offers a myriad of opportunities across a wide range of different businesses and industries.

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

I’m listening to Warren Buffett and buying bargain shares!

Our writer has been taking lessons from the investing career of Warren Buffett. Here's how he's using it to try…

Read more »

Close-up of British bank notes
Investing Articles

Here’s how I’d spend £6,900 on income shares to try and earn £500 per year

Christopher Ruane outlines some of the investment principles he'd apply when trying to earn £500 of dividends annually by spending…

Read more »

Newspaper and direction sign with investment options
Investing Articles

My 3 picks for the best UK shares to buy in June

Mark David Hartley is bullish about the UK stock market right now. He reckons these are the three best shares…

Read more »

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

23% per annum: is this FTSE 250 stock too good to turn down?

FTSE 250 constituent Games Workshop has posted an impressive return over the last five years. This Fool takes a closer…

Read more »