Games Workshop’s (LSE: GAW) share price has underperformed this year as supply chain issues look to be hampering business performance. In typical management style, communication has been lacking in detail, so investors have been left in the dark on just how bad these supply chain issues have been. But with sales still growing, has this presented a buying opportunity for me?
Current trading
Management warned back in September that freight costs and currency exchange rates have added pressure to the business. However, in a positive sign, sales have continued to grow and trading remains in line with management expectations. But it remains the case that investors still don’t know how much margins have been impacted. Jefferies noted these ongoing risks and cut its price target and current year estimates to reflect the challenges the business is facing, causing the shares to tumble further on Friday.
It should be noted, though, that sales growth in the quarter to the end of August 2021 is a very good sign for the business. This is because Games Workshop released a major update to its Warhammer 40K world in the equivalent quarter ending August 2020 when sales growth was particularly strong. With upgraded warehousing facilities in the UK, and in its key growth market in the US, there’s a lot for me to be excited about.
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Games Workshop’s share price opportunity
Unfortunately for current shareholders, Games Workshop’s share price is down over 15% this year against a rise of 13% for the FTSE 250 at the time of writing. But this may well present me with a buying opportunity.
The stock isn’t conventionally cheap on a forecasted price-to-earnings ratio of 27 for this year. Analyst estimates have been known to undershoot actual performance, likely due to management’s vague guidance, so this ratio may come down as the second quarter comes to a close. A forecasted dividend yield of 2.2% isn’t to be sniffed at for what could still be a very attractive growth story.
Even more exciting is the hidden value of Games Workshop that doesn’t show on its balance sheet. The company has a rich history of storytelling and characters that spans decades, and this intangible asset base is hard to value. The company is looking to monetise this further by signing new deals with video game developers and by launching its own streaming service. This has the potential to be very lucrative, and a high-margin business.
With enhanced manufacturing and warehousing facilities focused on its core miniatures business, exciting growth markets in the US and Asia, alongside expanding licensing deals, Games Workshop’s shares may have just paused for breath. Management seems as determined as ever to grow the business. It’s a good opportunity for me to buy at its current price in my view.
