I’m a huge, huge fan of Games Workshop (LSE:GAW) shares. Today, the FTSE 250 company’s the fifth largest holding in my stocks portfolio.
I’ve enjoyed a solid return since I first added them to my portfolio in 2020. But my love of the business extends beyond the money I’ve made, and could stand to make in the future.
As a fan of the fantasy gaming genre, I’m a frequent buyer of Games Workshop’s Warhammer line of products. They set the gold standard in this niche industry, where hobbyists build, paint, and then do battle with a wide array of miniature armies.
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I understand what makes the company a market leader, and what therefore also makes it a brilliant investment. Games Workshop’s share price has surged a whopping 1,630% in the past 10 years. And I believe it has what it takes to eventually end up in the blue-chip FTSE 100 index.
Here are three reasons why I think the business will remain a top stock for years to come.
1. Booming market
The fantasy genre has exploded in size since Games Workshop opened its first London shop in 1978. It had 535 outlets operating across the globe at the start of 2024, having opened another 14 in the previous six months.
Enthusiasm for the tabletop gaming hobby continues to rocket. And especially in fast-growing emerging regions where it continues to expand. Analysts at Cognitive Market Research think the market will swell at a compounded annual rate of 12.2% between now and 2031.
But this growth means new entrants are emerging to challenge Games Workshop. It also means product counterfeiting is increasing, helped by the growing popularity of 3D printing. That’s a big risk for the company.
Still, the pace at which the market’s expanding — allied with Warhammer’s established position in the sector — means company sales still look set to grow rapidly.
2. High margins
Rising costs are a threat to any business. However, Games Workshop’s high margins have so far allowed it to continue growing profits sharply, even when expenses rise.
The company’s core gross margin stood at 69.4% as of November, latest data on this front showed.
Its formidable margins are thanks to a variety of factors, including:
- A large proportion of direct sales through its shops and online portals
- The high quality of its products, which allows it to charge premium prices
- Warhammer’s loyal fan base, which leads to a reliable stream of repeat purchases
- A lack of substantial competition
I believe its margins will remain high over the long term.
3. Mass media potential
As I say, Games Workshop’s miniatures and game systems already enjoy impressive levels of sales growth. But its revenues could step up substantially if plans to licence out its intellectual property (IP) take off.
The business is in talks with Amazon to develop programming based on its Warhammer 40,000 franchise. If successful, it could draw in armies of new fans and supercharge interest with existing customers. It would also likely generate huge royalty revenues.
Warhammer superfan and Hollywood A-lister Henry Cavill is already slated to star and produce in future film and TV content. Any fresh news on the Amazon tie-up — which I’m expecting soon — could send Games Workshop’s share price to new record peaks.
