Games Workshop Group‘s (LSE:GAW) impressive share price performance has probably surprised many people. After all, who would have thought that a company selling miniature plastic figures could become one of the UK’s most valuable listed companies?
Since December 2024, its shares have risen 38% in value. That was the month it joined the FTSE 100. It’s now the UK’s 67th most valuable listed company.
However, could there be more to come? Let’s take a look.
A clever model
The first thing to note is that many think the group’s more than just a business. To some, it’s a cult. This helps create a huge amount of loyalty and repeat business from its customers (or should I say members?).
Its biggest brand is the Warhammer franchise. According to the group’s marketing blurb, this comprises “a variety of tabletop games, miniatures, universes, and stories”.
In a recent article in the Financial Times, Jason Andrew, the co-founder of Arbor Group, put the group’s success down to its near-monopoly of the supply chain. He said: “They design the IP [intellectual property], manufacture the product, control the retail experience and own the distribution.”
This helps it earn an impressive margin. During the 52 weeks to 1 June (FY25), it reported a core gross profit margin of 69.5% and 100% on its licensing arrangements.
New venture
In a partnership that it hopes will be highly lucrative, the group’s working with Amazon Studios to create a number of films and TV shows. This could take the brand to a new audience. And this is important because there’s only so much it can sell to existing customers, which remains a concern of mine.
There’s some evidence that its earnings growth is slowing. During the six months ended 30 November, the group estimates that its profit before tax will be at least 6.5% higher than for the same period a year earlier. But this time last year, the reported half-year increase was 33%.
Another potential issue is that the group’s not that great for income. Based on amounts paid in respect of FY25, the stock’s currently yielding 2.6%, a little below the average for the FTSE 100.
However with a payout ratio of 87%, the scope to improve its yield further is limited. I think this also calls into question the sustainability of its dividend.
Final thoughts
Undoubtedly, Games Workshop is a British success story. Since December 2015, its share price has risen nearly 3,290%. But if I’m honest, with a multiple of 36 times forward earnings, I think the stock’s expensive. And analysts appear to agree with me. The consensus view is that the group’s shares are 9% over-valued compared to today’s (5 December) price of £198.30.
Having said that, it’s important to acknowledge that there are only three brokers covering the stock. Their diverse price targets of £170, £180 and £210 suggest there isn’t really a consensus.
Personally, it feels as though I have left it too late to take a stake. Of course, I could be proved wrong. If the move into TV and film is a success then I’m sure the group’s share price will climb higher. But until I know more, I’ll sit on the sidelines and look for the ‘next’ Games Workshop to invest in.
