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No different firm on the planet does precisely what Video games Workshop (LSE:GAW) does, making it one among my favorite FTSE 100 development shares.
The Nottingham firm designs and manufactures tabletop gaming merchandise, which it sells by its personal outlets and web sites and thru third-party distributors. We’re speaking in regards to the miniatures themselves, sport equipment like cube and surroundings; the glues and paints that convey the fashions to life; and the novels and rulebooks that develop the lore and make play attainable.
As a hobbyist myself, I do know first-hand the drawing energy of its immersive universe and high-quality miniatures. It’s why I personal Video games Workshop shares in my very own portfolio, and suppose traders ought to give it critical consideration.
Development hero
Since 1978, the corporate’s spent a long time pioneering the fantasy gaming market and growing must-have video games methods like Warhammer 40,000. As such, it has what Warren Buffett would describe as a formidable financial moat — it’s cornered the market, and enjoys huge margins due to its merchandise’ appreciable pricing energy.
Nevertheless, that’s not the one cause why (for my part) it’s top-of-the-line development shares on the market. With the worldwide fantasy market nonetheless booming, and Video games Workshop stepping up licencing of its mental property throughout a number of media, I’m anticipating its spectacular and long-running development story to roll on.
Most excitingly, Video games Workshop is partnering with Amazon to develop TV reveals and movies primarily based on its Warhammer: 40,000 universe. Content material isn’t due for a few years, and there’s at all times the chance of a poorly-received adaptation. However the earnings potential — from each licencing and elevated miniatures gross sales — is big.
Turning to its core operations, I really feel its pipeline of latest merchandise will proceed to drive strong gross sales. Refreshed variations of its Warhammer: Age of Sigmar and Warhammer: 40k have offered like proverbial hotcakes within the final two years.
Competitors is rising as different video games firms goal a slice of this profitable market. But Video games Workshop has to date proved it has what it takes to face up to this risk.
Sturdy returns
Over the past decade, Video games Workshop’s gross sales have rocketed 411% to £628.7m. Pre-tax revenue has risen by an even-more-impressive 1,480%, to £262.8m.
This displays the optimistic impression of working leverage, the place prices stay largely mounted whilst gross sales develop, which means every further pound of revenues drops straight into the income column. It additionally underlines the corporate’s efficient value administration and development of its high-margin licencing operations.
Following this income surge, Video games Workshop’s share value has leapt 2,550% to present ranges of £15.43 per share.
The fantasy big’s shares don’t come low cost consequently. Its ahead price-to-earnings (P/E) ratio of 29.9 instances is way above the FTSE common of 12.5 instances.
Given Video games Workshop’s observe report of outperformance and its future development prospects, I feel the premium valuation is effectively deserved. It’s a key plank in my portfolio, and I plan to maintain elevating my holdings over time.
