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Is this the best UK share to buy right now?

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What’s the best UK share to buy today? Based on recent performance, I reckon war gaming firm Games Workshop (LSE: GAW) would have to be a contender.

Games Workshop’s share price has risen by 60% already this year. Longer-term shareholders have seen the value of their stock rise by an impressive 1,635% over the last five years. That’s enough to turn a £3,000 investment into £52,050, plus dividends!

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GAW shares are now hovering around 10,000p. This makes Games Workshop one of the very rare UK stocks to earn a £100 price tag.

Can Games Workshop continue its impressive run of growth, or should shareholders think about taking some money off the table?

A winning game

Games Workshop’s customers spend a lot of money and time buying and painting the firm’s miniature models. These are then used to play the Warhammer games created by the company.

This business is now valued at around £3.3bn. That’s more than many big-name companies, including food producer Tate & Lyle, housebuilder Bellway and television group ITV. All three of these firms are expected to generate between three and four times more profit than Games Workshop this year.

The hobbyist company’s high rating means its shares are now valued at around 40 times forecast earnings. Although this is certainly a demanding valuation, I’m not sure that it’s too much. As I’ll explain, this business has some rare advantages.

Super profits, hidden value

There are three elements to Games Workshop’s business which make me think the shares could still be priced fairly. One is that chief executive Kevin Rountree has delivered an incredible run of growth which shows no signs of slowing.

After-tax profits have risen from £13.5m in 2016 to £71.3m last year. A figure of £78.2m is being forecast for the current year.

The second is that Games Workshop is very profitable. The group’s operating profit margin has averaged around 33% over the last three years, supporting strong cash generation and regular dividends.

Finally, Games Workshop is also generating growing profits from royalties. The Warhammer franchise is ideal for animated films and video games. These generate royalty payments for almost zero effort. Royalties rose from £11.3m to £16.8m last year.

The best UK share to buy today?

Is Games Workshop unstoppable? I don’t think so. It’s worth remembering this is a niche hobby. Lockdown probably gave sales a boost and helped attract new players, but I don’t think Warhammer will ever have the mass appeal of video games, for example.

Growing royalty payments should help to offset any slowdown in growth, but I’m not convinced the stock’s current valuation is a good starting point for an investment. With the shares trading on 40 times forecast earnings, I think it would only take a small disappointment to trigger a correction.

Of course, I could be wrong. And any slowdown might still be years away. If I owned Games Workshop shares, I wouldn’t sell. But I don’t think it’s the best UK share you can buy today. Right now, I think there are better opportunities elsewhere.

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Roland Head owns shares of ITV. The Motley Fool UK has recommended ITV. 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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