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I hold plenty of FTSE 100 stocks in high regard, but my favourite index member has long been Games Workshop (LSE: GAW).
Even so, recent performance has been shocking. The share price of the fantasy figurine manufacturer and retailer has tumbled almost 30% since hitting a record high back in late June!
What’s got investors so spooked?
All fun and games until…
Like most big drops, it’s not down to one single thing.
Despite reporting a solid set of results for the year to 31 May, it seems that the market has been fretting over the drop in licensing revenue over the period. This is what the company receives when its intellectual property is used by someone else.
To be fair, a drop of nearly 40% to £32.9m is hardly insignificant. But a reduction was expected given that the previous year saw the release of the Space Marine 2 game.
Still, it seemed the market didn’t like the size of this drop, especially with the shares trading at a premium valuation.
On top of this, the company is facing higher plastic costs and US tariffs.
Is this FTSE 100 stock now good value?
As I type, the price-to-earnings (P/E) ratio stands at 27. With the average in the FTSE 100 around the mid-teens, that’s clearly not cheap.
The thing is, I still think this sort of valuation for a company like Games Workshop is actually reasonable.
Without getting too bogged down, it continues to boast all of the things I look for when shopping for high-quality stocks. These include sky-high margins, consistently big returns on the money it invests and net cash on its balance sheet.
The last of these isn’t exactly common in the FTSE 100 and should serve the company well in the event of a nasty wobble in the UK economy.
Think years, not months
Aside from its blistering fundamentals, it’s also important to put things in perspective. In spite of the recent fall, Games Workshop has been one of the best UK stocks to hold over the long term.
If we go back 10 years, the share price stood at 500p or so. Today, it stands at almost 17,000p. Put another way, even a modest stake in Games Workshop a few years ago would likely have left investors a lot richer. And that’s without factoring in all the dividends holders have received over this period.
Speaking of which, the current yield stands at 3.1%. That’s on par with the average in the FTSE 100. It’s also pretty generous for what most Magpies would still consider to be a growth stock.
I’m considering buying
Based on previous years, we should receive a trading update from the company at some point in November. If rising inflation has impacted sales, there’s a good chance this FTSE 100 stock will continue falling in value. Even dedicated fans of the Warhammer 40K brand — and there are a lot of them — may have been forced to cut back.
However, the fact that directors have been buying shares recently gives me confidence. It also leaves me thinking that I may get involved before that update drops into the market’s lap.
Should you invest £5,000 in Games Workshop Group Plc right now?
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Paul Summers has no position in any of the shares mentioned.
