An uncertain political situation in the UK is causing volatility in the stock market. As a result, I think that this is a great time to be adding UK stocks to my Stocks and Shares ISA.
Right now, I’ve reached my allocation for this financial year. But there’s one FTSE 250 stock in particular that I’d love to buy at today’s prices.
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Should you invest £1,000 in Games Workshop 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 Games Workshop made the list?
Games Workshop
Shares in Games Workshop (LSE:GAW) have fallen by 40% since the start of the year. If someone had offered me Games Workshop shares at £60 at the start of the year, I’d have taken their arm off.
So what’s been going wrong? Nothing much, as far as I can tell – the company still has a strong balance sheet and an impressive ability to generate cash.
The falling share price looks to me like it’s partly the result of inflation and partly due to rising interest rates. As a result, I see this as a great buying opportunity for me.
Inflation
The company’s most recent trading update looks to me like a classic example of a business affected by inflation. Revenue came in 8% higher than last year and profits came in 13% lower.
That’s pretty much what I’d expect to see from a company dealing with inflation. Games Workshop is able to generate higher revenues as consumer spending increases, but this is being offset by higher costs, resulting in lower profits.
This is something of a concern, mainly because it doesn’t look like inflation in the UK is subsiding to the Bank of England’s target levels any time soon. The most recent inflation reading was 10% – a lot higher than the 2% target.
Interest rates
The other thing weighing on the Games Workshop share price is rising interest rates. Unlike inflation, this has to do with investor sentiment rather than the amount of cash the underlying business is generating.
Higher interest rates mean that investors are demanding a better return on their money. As a result share prices – including the Games Workshop share price – have been falling.
Since rising interest rates are intended to combat rising inflation, this is also an ongoing concern.
A stock to buy
Despite the headwinds, I still think this is a great stock for me to buy. Put simply, I think that it’s just too cheap at today’s prices.
Games Workshop shares trade at a price-to-earnings (P/E) ratio of around 15. I think that’s just too low for a company that has been growing its revenues at an average of 12% per year for the last decade.
The near future might be turbulent for Games Workshop in a difficult macroeconomic environment. But the company has just increased its dividend and I that the stock is underpriced, so if I’d buy it for my Stocks and Shares ISA right now, if I could.
