Games Workshop (LSE: GAW) shares had a weak 2022. But they bounced back, and are up a whopping 250% in the past five years.
And anyone who invested £10,000 in the stock just 15 years ago could be sitting on three-quarters of a million now, depending on the timing. That’s what I call a growth stock.
Early starts
Games Workshop shares had a couple of false starts in the early days.
In the late 1990s, and again in the mid-noughties, the shares started to climb. And both times they fell right back down. But that can happen with growth shares
And those lost gains are now hard to see on the long-term price chart. They’ve been dwarfed by the huge surge that kicked in around 2017.
FY results
Games Workshop seems to be one of the UK’s favourite growth stocks right now. And after a look at results for the year to May 2023, I’m not surprised.
CEO Kevin Rountree said:
We finished the year having delivered eight consecutive years of group sales and profit growth — in the period we reported the highest level of sales and the most profit we have generated since flotation 29 years ago.
I doubt there’ll be many who don’t find that impressive.
The firm reported a 13.5% rise in total revenue over the previous year. And that led to a 5% gain in earnings per share (EPS).
After Covid
There’s one thing that pleases me about these results, and it’s to do with Covid. The share price climbed after the virus trapped us all in our homes and unable to go out.
So, the perfect conditions for a boost in sales of games figures that folk can entertain themselves with behind the safety of their locked front doors, I’d say.
Many, including me, expected things to cool when the virus threat receded. And it was no shock to see the stock drop after the world opened up.
But sales and profits are still growing. So it looks like it wasn’t just a Covid boom after all.
Time to buy?
I look at growth stocks after they’ve had a good run and wonder if I should buy. But it’s not easy.
They’re often on high price-to-earnings (P/E) ratios, and Games Workshop shares are no exception. A high P/E is often fair when we have strong growth prospects.
The P/E here is up around 27, though. I’d be fine with that if I saw big EPS growth in the next few years, but all I see is modest forecasts. The P/E would only drop to 25 by 2025 if they’re right.
Led by fashion?
The Warhammer brand of gaming figures is very popular. In fact, the company has a possible deal with Amazon.com lined up, but contract negotiations seem to be going slowly.
I’m wary of stocks that rely on a popular gaming product, as trends can change. And I’ve seen some top brand lines crash when buyers moved on to the next big thing.
I don’t know the gaming market well enough to tell if Games Workshop is at risk of that. So that means I’ll stay out. I think those who know it better might still be onto a good thing though.
