Could Games Workshop shares double in a decade?

Christopher Ruane unpicks some of the reasons Games Workshop shares have more than doubled in five years — and considers what might happen next.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Image source: Games Workshop plc

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.

When it comes to investing, fantasy can be a costly mindset. That does not mean that pragmatic investing and fantasy worlds do not go together, though. Take Games Workshop (LSE: GAW) as an example. Games Workshop shares have been star performers over the long term, more than doubling in value over the past five years.

Specifically, they are up 124% during that period.

Not only that, but the FTSE 250 company has been a regular dividend payer, with as many as five dividends in some years. The current dividend yield is 3.3%.

Should you invest £1,000 in Aston Martin right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Aston Martin made the list?

See the 6 stocks

Created using TradingView

But while the dividends attract me, what excites me most about the idea of owning Games Workshop shares is the potential for further price gains. I think the shares could double in the coming decade.

Strong business model

That is an ambitious expectation. But I think Games Workshop has a great business model.

Many of its products are unique. By building fantasy universes, it can encourage customers to become more and more engaged in its products, likely meaning they become less price sensitive over time.

That is a formula for growing sales and profits. Look at how the company’s sales revenues have soared in recent years.

Created using TradingView

The bottom line growth has also been impressive. Net income has also jumped in recent years.

Created using TradingView

Something interesting about the profits is not just the growth trajectory but also the absolute amount. Last year, the company made post-tax profits of £135m on sales of £471m. That shows just how profitable the business model is, with a net profit margin of 29%.

Valuing the shares

The City is clearly alert to the possibilities here.

Games Workshop shares currently trade on a price-to-earnings ratio of 24. That is a bit pricier than I would like to pay and indeed is the reason I do not currently own Games Workshop shares. If they were cheap enough I would snap them up in a heartbeat.

But that ratio is based on current earnings. Not only have total earnings grown handily at the company, so too have earnings per share.

Created using TradingView

If earnings per share keep growing, I expect the share price to do the same.

What would it take for them to double in the coming decade? In my opinion, basically just more of the same. Games Workshop has a proven business model that is humming along lucratively. I expect that to continue. New revenue streams like film licensing rights could add even more growth drivers for the business.

Will it happen?

Although the company is working with Amazon to bring its fantasy world to both big and small screen, it remains to be seen whether that will in fact be a money spinner.

Games Workshop’s concentrated manufacturing footprint could also be a risk if, for any reason, its main production site has to stop operating for a period.

Created with Highcharts 11.4.3Games Workshop Group Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

But I think this proven business can run and run. If it successfully navigates hurdles along the way, I reckon Games Workshop shares could indeed double over the coming decade.

Should you invest £1,000 in Aston Martin right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Aston Martin made the list?

See the 6 stocks

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. C Ruane 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.

Like buying £1 for 51p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

More on Investing Articles

Investing Articles

Up 30% in weeks, does the BAE Systems share price still offer value?

The BAE Systems share price has been on a tear over the past couple of months. This writer sees limited…

Read more »

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

Hunting for shares to buy as the market trembles? Remember this!

After a choppy week in global stock markets, our writer goes back to basics in his hunt for bargain shares…

Read more »

Investing Articles

3 simple principles to help build wealth in an ISA

As a new tax year opens up new ISA allowances for many investors, our writer shares a trio of things…

Read more »

Investing Articles

US trade tariffs: what they could mean for UK shares like Ashtead, Compass Group, and Experian

US trade tariffs continue to rock global markets, and the UK is no exception. Our writer considers how a new…

Read more »

Mindful young woman breathing out with closed eyes, calming down in stressful situation, working on computer in modern kitchen.
Dividend Shares

The Trump slump has smashed these FTSE 100 shares!

After a rough week for US and UK shares, investors have been shaken. But now these FTSE 100 stocks have…

Read more »

Investing Articles

£10,000 invested in Rolls-Royce shares 5 years ago is now worth…

Rolls-Royce shares have been on fire since April 2020. Part of this is the result of pandemic restrictions lifting, but…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

£10,000 invested in Tesla stock at its peak in 2024 is now worth…

Over the last few months, Tesla stock has lost nearly half its value. Here, Edward Sheldon explores a few takeaways…

Read more »

Investing Articles

Is the S&P 500 heading for an epic stock market crash?

Our writer shares his thoughts on a very crazy time for the S&P 500 and the wider stock market. How…

Read more »