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1 FTSE 250 growth stock I’d buy today

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If anyone asks me for an example of how stock-picking can generate life-changing wealth, I usually direct them to FTSE 250 fantasy figurine maker Games Workshop (LSE: GAW). In five years, the company’s share price has climbed over 2,300%.

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So, the question is, would I buy now? Based on the numbers released by the company today, the answer would likely be in the affirmative.

Profits rocket at this FTSE 250 stock

Stuck indoors due to multiple UK lockdowns, it was only natural fans of GAW would turn to their games to pass the time. As a result, revenue climbed 31% to a little above £353m over the year to 30 May. That’s impressive considering Games Workshop had to close its physical stores for a hefty proportion of those 12 months.

As you might expect, GAW’s online offering took up the slack. Sales via this channel increased 70%, ultimately helping pre-tax profit to rock almost 69% higher to £150.9m. 

Strong growth ambitions

So can GAW keep growing? Management certainly thinks so. Looking ahead, the company said it would aim to increase its presence “in every major country in the world” and “search for customers everywhere.

Hyperbole aside, China and Japan look to be key targets with the FTSE 250 firm planning to open Warhammer store/cafes in Shanghai and Tokyo in 2021/22. These should lead to greater customer engagement and, consequently, sales. GAW also said today it was committed to opening 10 Warhammer stores per year in North America.

Combine all this with the launch of several video games, live action/animation shows and a fresh online store and I think the future looks very positive indeed.

Have we seen the top?

Even so, there are a few arguments for searching elsewhere in the market for promising investment opportunities. First, there’s the near-term outlook.

Having benefitted from more people spending time indoors over 2020/21, sales may now begin to moderate as people spend their cash on outdoor pursuits. This — combined with today’s weakness in the FTSE 250 as a whole — may help explain why Games Workshop shares were down more than 4% in early trading.

Second, there’s the price. Before markets opened this morning, GAW shares were trading at an analyst consensus of 31 times forecast earnings. That’s certainly isn’t cheap. If markets were to sour over the rest of 2021, it’s arguably the highly-priced stocks — where expectations are highest — that’ll suffer the most. 

Third, investors need to consider just how big Games Workshop has now become. A market capitalisation of £4bn is approaching FTSE 100 territory. If I were seeking companies that were capable of doubling their share prices over a short period of time, I’d likely need to look lower down the market spectrum.

Long-term hold

To his credit, CEO Kevin Rountree reflected today that the company isn’t concerned with “any short-term share price volatility or the weather.” As a Foolish, long-term investor, I know I should adopt the same approach. So, on balance, I’d be happy to buy the shares for my own portfolio today.

With its disciplined finances, high-profit margins and incredible returns on capital, I suspect this is one FTSE 250 stock that’ll go on delivering the goods.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Games Workshop. 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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