My fellow writers on The Motley Fool have been bigging up FTSE 250 growth stock Games Workshop Group (LSE: GME) for years. Some have fallen for it hard.
Ben McPoland named the tabletop miniature gaming master his favourite FTSE 250 stock and even dedicated a playful Valentine’s ode to it in February, where he presciently said it was “destined for a promotion to the FTSE 100“.
I won’t be writing an ode to Games Workshop. More like a lament. Because while I was well aware of its charm, I never got round to buying it.
Games Workshop is playing to win
And now it’s on the brink of FTSE 100 glory after the shares jumped another 25.5% over the last 12 months. Over five years, they’re up 139.34%.
With Games Workshop expected to join the blue-chip index when the next reshuffle is announced on 4 December, it’s attracting even more positive attention.
This morning (28 November), Hargreaves Lansdown praised its “prowess at the full sweep of production design, manufacturing, distribution and retail” that has made it a “global leader”.
Big hit Warhammer 40,000 is the most successful miniature war game in the world. Its 10th edition drove record revenues, boosted by its video game licensing.
This push into licensing could drive further growth, as Amazon looks to develop the Warhammer universe into films or TV series.
I’m always wary of buying stocks after a strong run (and have missed out on a lot of top momentum stocks as a result). But this suggests Games Workshop has the potential to power on.
The share’s outlook is a bit binary
On 22 November the Games Workshop share price surged 16% to hit yet another all-time high, after the board lifted half-year guidance on the back of better-than-expected recent trading.
Pre-tax profits are forecast to hit at least £120m for the six months to 3 December. That’s up 25% from last year’s £96.1m. Core revenues may top £260m. Licensing revenues from video games, books, merchandise are heading past £30m.
Today, just three analysts offer one-year price targets on the stock (a number that will surely rise). They’ve set a median share price target of 12,850p. That’s actually down 6.17% from today’s 13,840p. This stokes my fear that I’m coming to this too late. Although all three still label it a Strong Buy.
Games Workshop’s shares aren’t cheap, unsurprisingly, with a price-to-earnings ratio of 29.2. However, the yield of 2.72% is higher than I expected. The board seems keen to deliver dividend growth, as this chart shows.
Chart by TradingView
Games Workshop understands its customers and has a strong balance sheet and plenty of cash to fund growth. My big worry is the Amazon tie-up. A successful series could lift Warhammer to another level, but what if fans are disappointed? That’s always a risk with cult intellectual property like this.
Another risk is that it never happens at all, and the share price slumps. This stock is a bit more binary than I’d like. I might just have to accept that I’ve missed the action, and leave it be. Although I suspect I’ll be penning another lament in the months to come.
