No other company on the planet does exactly what Games Workshop (LSE:GAW) does, making it one of my favourite FTSE 100 growth shares.
The Nottingham company designs and manufactures tabletop gaming products, which it sells through its own shops and websites and through third-party vendors. We’re talking about the miniatures themselves, game accessories like dice and scenery; the glues and paints that bring the models to life; and the novels and rulebooks that expand the lore and make play possible.
As a hobbyist myself, I know first-hand the drawing power of its immersive universe and high-quality miniatures. It’s why I own Games Workshop shares in my own portfolio, and think investors should give it serious consideration.
Growth hero
Since 1978, the company’s spent decades pioneering the fantasy gaming market and developing must-have games systems like Warhammer 40,000. As such, it has what Warren Buffett would describe as a formidable economic moat — it’s cornered the market, and enjoys enormous margins thanks to its products’ considerable pricing power.
However, that’s not the only reason why (in my view) it’s one of the best growth shares out there. With the global fantasy market still booming, and Games Workshop stepping up licencing of its intellectual property across multiple media, I’m expecting its impressive and long-running growth story to roll on.
Most excitingly, Games Workshop is partnering with Amazon to develop TV shows and films based on its Warhammer: 40,000 universe. Content isn’t due for a couple of years, and there’s always the risk of a poorly-received adaptation. But the earnings potential — from both licencing and increased miniatures sales — is enormous.
Turning to its core operations, I feel its pipeline of new products will continue to drive robust sales. Refreshed versions of its Warhammer: Age of Sigmar and Warhammer: 40k have sold like proverbial hotcakes in the last two years.
Competition is rising as other games companies target a slice of this lucrative market. Yet Games Workshop has so far proved it has what it takes to withstand this threat.
Robust returns
Over the last decade, Games Workshop’s sales have rocketed 411% to £628.7m. Pre-tax profit has risen by an even-more-impressive 1,480%, to £262.8m.
This reflects the positive impact of operating leverage, where costs remain largely fixed even as sales grow, meaning each extra pound of revenues drops straight into the profits column. It also underlines the company’s effective cost management and growth of its high-margin licencing operations.
Following this profits surge, Games Workshop’s share price has leapt 2,550% to current levels of £15.43 per share.
The fantasy giant’s shares don’t come cheap as a result. Its forward price-to-earnings (P/E) ratio of 29.9 times is far above the FTSE average of 12.5 times.
Given Games Workshop’s track record of outperformance and its future growth prospects, I think the premium valuation is well deserved. It’s a key plank in my portfolio, and I plan to keep raising my holdings over time.
