Up 62% in 1 year! Why is the Games Workshop share price on fire?

The Games Workshop share price exploded higher at the end of last week and has now more than trebled over the past five years.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Abstract bull climbing indicators on stock chart

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

sdf

The Games Workshop (LSE: GAW) share price surged 10.5% on Friday 15 September after the miniature wargames specialist released an excellent trading update.

Now at 11,500p, the stock is only a couple of quid off its all-time high. And after a 213% rise, it’s the best-performing share in the FTSE 250 over five years. Across a decade, it has turned a £1,000 investment into around £14,000.

That’s not including dividends, of which there have been many along the way. Include those and the total 10-year return from £1k rises to around £23,000!

Should you invest £1,000 in Berkeley Group right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Berkeley Group made the list?

See the 6 stocks

What has been fuelling this dramatic rise? And should I buy more shares?

Created with Highcharts 11.4.3Games Workshop Group Plc PriceZoom1M3M6MYTD1Y5Y10YALL18 Sep 201818 Sep 2023Zoom ▾Jan '19Jul '19Jan '20Jul '20Jan '21Jul '21Jan '22Jul '22Jan '23Jul '232019201920202020202120212022202220232023www.fool.co.uk

Trading update

In its latest announcement, the Nottingham-based company said that trading for the three months to 27 August was well ahead of its expectations. Revenue jumped around 14% from the same period last year, to £121m, while pre-tax profit is expected to be 46% higher at £57m. Licensing revenue doubled to approximately £6m.

The figurine maker, which launched the 10th edition of its Warhammer 40,000 Leviathan set during the quarter, said the strong performance was “driven by healthy growth across all channels”.

As a result, the company declared a dividend of 50p per share. This takes its dividends declared so far this financial year to £1.95 per share, up from £1.20 per share at the same point last year.

Incredible fundamentals

The shares continue to rise alongside the company’s profitable growth. Revenue of £221m in FY 2018 had more than doubled to £471m by last year. Its net profit also more than doubled over the same period, going from £59.5m to £135m.

Its median return on capital employed over the last five years is 66%. This high figure shows the business is doing a fantastic job of generating profits from its capital.

Plus, its balance sheet is immaculate, partly because it doesn’t engage in debt-fuelled acquisitions. It doesn’t need to, as it develops its own intellectual property based on its endless, imaginary worlds and cast of characters.

Looking forward, I think the planned Warhammer films in partnership with Amazon Studios could bring many more fans into its fantasy-world ecosystem.

Will I add to my holding?

Games Workshop currently sports a market cap of £3.8bn. If the share price momentum continues, it’ll be a FTSE 100 firm before too long. And I’d say a welcome addition too, given its quirky and unique characteristics.

Still, trading at around 26 times this year’s forecast earnings, the stock is quite pricey. Any setbacks to growth, earnings or its licensing deal with Amazon could knock the shares quite badly.

Plus, it should be remembered that the company operates in a niche market, albeit a very profitable one. The firm repeatedly highlights this: “We understand that what we make may not appeal to everyone“.

So we don’t know when the firm could max out its market opportunity and encounter growth obstacles. Personally, I expect the company to continue growing profitably for many years, exploiting opportunities in Asia and elsewhere. But that’s not guaranteed.

Nevertheless, I’m a big believer in adding to my winners, and this growth stock has certainly been one of those. So I’m open to increasing my holding. I’m just waiting for an appropriate dip in the share price to make my move.

But here’s another bargain investment that looks absurdly dirt-cheap:

Like buying £1 for 31p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Ben McPoland has positions in Games Workshop Group Plc. The Motley Fool UK has recommended Amazon.com and Games Workshop Group Plc. 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.

More on Investing Articles

Dominos delivery man on skateboard holding pizza boxes
Investing Articles

At 10p, is this penny stock a screaming buy?

This penny stock's growing rapidly, is debt-free, and is about to almost double its store footprint! Could it be on…

Read more »

Mature people enjoying time together during road trip
Investing Articles

How to take an empty ISA and transform it into a potential £50,000 second income

A key requirement of reaching financial freedom is earning a second income. And the stock market provides a way to…

Read more »

Man hanging in the balance over a log at seaside in Scotland
Investing Articles

How much do you need to invest in the stock market to quit work and live off dividends?

Quitting a nine-to-five job and living off dividends from the stock market sounds like a pie-in-the-sky idea to many. But…

Read more »

UK financial background: share prices and stock graph overlaid on an image of the Union Jack
Investing Articles

Prediction: this UK share could outperform Rolls-Royce between now and 2030!

Rolls-Royce has been on a phenomenal run, but over the next five years, another aerospace business could potentially deliver far…

Read more »

Illustration of flames over a black background
Investing Articles

With a 6.4% yield and 25 years of payout growth, is it a no-brainer to consider buying this dividend stock?

Our writer looks at the prospects of this remarkable dividend stock that’s increased its payout for 25 successive years and…

Read more »

DIVIDEND YIELD text written on a notebook with chart
Investing Articles

How long does it take to turn £20,000 into a £1,500 a year second income?

Anyone hoping to start earning a second income could do a lot worse than looking at the UK stock market.…

Read more »

A senior man using hiking poles, on a hike on a coastal path along the coastline of Cornwall.
Investing Articles

How much do you need in an ISA to aim for a £1,000 monthly passive income?

Discover how to start building long-term passive income in an ISA with compounding and smart investing to speed up the…

Read more »

Low angle close up color image depicting a man holding a shopping basked filled with essential fresh groceries like bread and milk in the supermarket.
Investing Articles

Should I put the FTSE 100’s ‘most hated’ share in my Stocks and Shares ISA?

Our writer thinks investors may have made a mistake in shorting this FTSE 100 stalwart. So should he put it…

Read more »