Up 140% and rocketing out of the FTSE 250! Is it too late for me to buy this red-hot stock?

Miniature war games hero Games Workshop has outgrown the FTSE 250 and is hammering at the door of the UK’s blue-chip index. Harvey Jones is worried.

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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.

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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%.

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

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.

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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 Phoenix Group Holdings Plc made the list?

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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. Harvey Jones 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.

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