The Games Workshop (LSE:GAW) share price has been on a roll recently. Despite the pandemic forcing its stores to close, the FTSE 250 company still managed to deliver a much better performance than in the last year. As a result, the stock is up by over 70% since the start of 2020 (and almost 27% year-on-year), despite its recent tumble. But can it continue growing from here? And should I be adding this business to my portfolio? Let’s take a look.
The Games Workshop (GAW) share price vs Covid-19
Games Workshop is the business behind the Warhammer franchise. It sells miniature figurines that can be used to play both a fantasy and science fiction variant of its tabletop game. The intellectual property has also been licensed to various game development studios that introduced another revenue stream through royalties.
Like many other non-essential retailers, Games Workshop was forced to close its doors to customers last year due to lockdown restrictions. And initially, this sent the GAW share price plummeting by approximately 40%. But as it turns out, with everyone being stuck at home, playing Warhammer was a popular way to pass the time. So, many individuals turned to the company’s online store to buy the units they needed.
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Looking at the latest annual report, online sales increased from 19% to 25% of overall revenue. Meanwhile, its retail store income shrank from 29% to 20%. That’s hardly surprising given the retail environment at the time. The rest of its gross income came from its 5,400 independent retailers (many of which also have an online shopping option) and royalties from video game licenses. In total, revenue for the last 12 months reached £353.2m. That’s 31% higher than a year ago and 38% higher than pre-pandemic levels. So, I’m not surprised to see the GAW share price surging.
What’s next for this business?
Games Workshop is currently in the process of launching its new Warhammer+ service. It’s a monthly subscription that allows members to access animated, painting, gaming, and lore shows. In addition, subscribers receive exclusive miniatures that cannot be purchased directly.
According to the management team, this newly proposed service saw some incredibly positive feedback when initially previewed to the community. And I must admit that the prospect of introducing a recurring revenue stream beyond royalties sounds quite promising. However, it is too soon to tell whether this venture will be a financial success.
Warhammer+, upcoming video game titles, and a new series of figurines have substantially raised investors’ expectations. This is why the GAW share price has been such a stellar performer recently. Unfortunately, that also means it’s now trading at quite a lofty premium. Based on today’s share price, the FTSE 250 stock is trading at a price-to-earnings ratio of around 30. Needless to say, if it fails to deliver the returns investors are expecting, the GAW share price could once again take a significant tumble.
The bottom line
There remains some element of uncertainty surrounding Games Workshop’s future growth potential. However, I think the business is heading in the right direction. With its retail stores now reopening and a wave of new content being released, I believe the GAW share price can climb higher over the long term. Therefore, I am considering adding this business to my portfolio today.
