Games Workshop (LSE: GAW) is a stock I like to talk about. After being range bound for over a decade, it tuned into a high flyer from 2017 through to 2021. The it dipped and the game was over, only for it to swing around and take the campaign to a fourth stage.
There are always reasons for and against buying a stock. So, I thought it might be worth outlining the bull and bear case for the Games Workshop share price. To be clear, I own Games Workshop stock and have no plans to sell as yet.
Level up
The recent interim results as of January 9, 2024, indicate a Games Workshop continues to perform well. Trade revenues are up 12.6% and retail revenues up 12.3%. Online sales are also up 4.9%. Licensing revenue spoiled the party by falling 15%. However, licensing revenues, basically royalties, are known to be volatile, and overall, these are positive results that speak to the quality of the business. The online revenues grew despite some issues with the launch of a new £10.8m online store.
Licensing revenue should be getting a boost as last month the company confirmed a deal was indeed signed with Amazon to develop films and TV series based on the world of Warhammer 40,000, which is Games Workshop’s flagship intellectual property.
Games Workshop has delivered eight consecutive years of sales and profit growth. Its business model is top notch. Gross margins have again come in high at 69.4%. It has always been good at keeping logistic costs low and managing inventory well. It has a dedicated, loyal customer base that spread and promote the hobby the company has provided amongst themselves and to others.
Users of the online Warhammer portal stand at 576,000 which is am increase of a third year-on-year. Warhammer+ subscriber numbers have moved from 115k to 169k. New TV shows and movies will help spread the word further, as I have said before Stranger Things releasing and Games Workshops price really start increasing seemed to coincide. Of course the likes of YouTube enable interested parties to build and join communities centred around the hobby (Games Workshops worlds, characters, settings, books, models etc).
Re-Roll
One worry is the valuation of Games Workshop shares. A forward price-to-earnings (P/E) ratio of 21 is above market averages, but its below the fantasy valuation seen in 2021, and less than the five year average of 25 for this stock in particular.
Entertainment Behemoths like Disney are entering the tabletop gaming space. The company has a concentrated manufacturing footprint, making all its models from a single site in the UK. That could be considered a risk as a shut down or problems with inbound or outbound logistics affecting this site disrupts everything.
You could argue that the size and excitement of the upcoming TV shows and movies with Amazon might distract managements attention from the main business, potentially affecting sales and profits. Then there is the resignation of chief financial officer Rachel Tongue from the board at the AGM this year and who will leave the company in January of next year. The market didn’t react well to the news, even allowing for the fact that there was no indication that Ms Tongue has any negative reason for leaving, and is conduction a planned and phased exit.
DISCLAIMER: James J. McCombie owns shares in Games Workshop. The Storied Investor has no beneficial ownership position in any of the stocks or securities mentioned. No comment in this article should be construed as a recommendation of, or opinion regarding the future performance of, any stock or security or collection of them mentioned herein. Opinions expressed are the author’s and do not represent the views of The Storied Investor.
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