What’s the best stock to invest in right now? It’s a tough question with no single correct answer – investing in shares always carries some risk. But I do have a company in mind.
In my view, this business has some excellent assets and great management. It has also created a lot of value for its shareholders – its share price has risen by more than 1,500% over the last 10 years.
I think this growth could still have further to go. As I’ll explain, some of the growth opportunities I can see for this business are only just starting to open up.
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An unusual niche business
The company in question is FTSE 250 wargaming specialist Games Workshop (LSE: GAW), which produces the Warhammer range of miniatures.
At first glance, this may seem an unlikely choice. And I have to admit that I’m never likely to be a customer.
However, Games Workshop doesn’t need all of us to be customers. The company’s success is built on an army of long-term fans who make regular purchases and also participate in the wider Warhammer ecosystem.
The nature of the hobby means that customers tend to be sticky. Once they’re hooked, they may be on board for decades. Games Workshop’s stores are another part of its success story – they are typically run by a single staffer who is also likely to be an enthusiast.
This business model supports an operating profit margin of more than 30% and has helped profits double since 2018.
Growth opportunities + risks
There are only a certain number of people in the world who will ever want to play Warhammer. But there are many more who might be interested in video games or television series built around the company’s unique intellectual property.
Licensing its stories for games and television is a new area of growth for Games Workshop. I think it could become very lucrative. A recent deal with Amazon has the potential to be a long-term earner, in my view.
Of course, no stock’s a guaranteed winner. Although I think that Games Workshop’s strong profitability does justify a premium valuation, the shares’ price-to-earnings ratio of 21 doesn’t look especially attractive to me.
Management risks are another concern. Although I think CEO Kevin Rountree has done an outstanding job, Games Workshop wasn’t doing so well before he took charge in 2015. What if he leaves?
Buy it now?
So is Games Workshop the best UK stock to invest in right now? That depends. For me personally, I’d want to see a more depressed valuation to offset some of the risks I’ve mentioned above.
But there are plenty of other investors out there who will tell me that it makes more sense to focus on quality and not worry so much about price. And they could be right.
The good news is I’m certain there are plenty of other UK shares out there with attractive price tags and the potential to deliver good performance. Some of them are in my portfolio already and I have my eye on several other new purchases.
Despite the uncertain economic outlook, I’m invested in UK shares for the long term.
