Games Workshop (LSE: GAW) shares keep breaking records. The FTSE 100 newbie just reached an all-time high with the shares going for a cool £145 a pop. The shares are up 50% in the last six months or so and they’ve doubled since late 2022.
The resulting bump in market share has lifted the stock onto the FTSE 100 and made it look like one of Britain’s brightest companies. Big question then, is it a buy to consider today?
I’ll mention that I’m a shareholder. I believed the firm’s keen devotion to maintaining the strength of its branding would foster a keen devotion from its customers. This seems even more true today as we see so many other brands chasing the easy money and losing the magic they originally had. This process alienates those fans sooner or later as well.
In the mainstream?
Take Star Wars, for instance. I remember a time when a new George Lucas film was a cultural event. You could barely walk down the street without seeing magazine articles or overhearing conversations about it.
Where is Star Wars now? After churning out a long line of uninspiring movies and drab TV series, its name’s in the gutter. A new Star Wars show called Skeleton Crew came out a month back. Jude Law was in it. Did anyone care? No one I know, at least.
The Games Workshop universes like Warhammer and Warhammer 40k might not be on the same level of Star Wars yet, but they might be heading there.
Amazon has commissioned a new TV show starring Henry Cavill that’s rumoured to have a $20m-$30m budget an episode (Games Workshop perhaps collecting a million in royalties each episode too).
A blockbuster video game was also released last year in the Warhammer 40k universe.
All in all, Warhammer might be going mainstream. There’s certainly a gap in the market for it. And Games Workshop shares might rise on such success.
The core of the business is still the tabletop games. That’s where the bulk of the revenue comes from anyway. But a focus on high-quality processes is evident there too.
It would be very easy to outsource all the production of those miniatures and paints and boxsets to China. Slash the margins, bump up the profits. We all know the playbook.
High prices
But Games Workshop doesn’t do this. It makes it products using British workers in British factories, all located near its headquarters in Nottingham.
This makes Warhammer an expensive hobby – a starter kit can cost £70, a single model can cost £40 – but folks buy them like hot cakes nevertheless.
The big question of course is the valuation. The shares in quality companies don’t tend to come cheap. In Games Workshop’s case, the shares trade at 27 times earnings. About double the FTSE 100 average isn’t what I’d call a bargain.
If supply costs rise or an economic slowdown hits then there’s room to fall there.
That said, the best companies tend to trade at high prices because, well, they’re the best companies. If Games Workshop continues to be the well-loved brand it is now then it could be an excellent buy even at this valuation.
As such, I’d say it’s one for investors to consider.
