So far, I’ve failed to buy growth stock Games Workshop (LSE: GAW). That’s a shame because over the past eight years it’s risen by more than 2,100%.
The miniature figure and games maker has proven to be quite a phenomenon, and I didn’t see it coming.
I have my own inner nerd, but failed to understand the mushrooming attraction and enthusiasm for Games Workshop’s crafted fantasy universe — I have not been worthy.
A transformational agreement?
Is it too late to get involved with the shares? I don’t think so. The company reignited investor interest a year ago when it announced an agreement with Amazon.Com subsidiary Amazon Content Services.
The move was an early step towards the American giant’s prospective development of Games Workshop’s Warhammer 40,000 universe into films and TV shows along with associated merchandising rights.
Wow! If that doesn’t get any warm-blooded investor’s pulse racing, nothing will. However, all those potential future earnings were never going to arrive quickly. In December 2023, Games Workshop said the two firms planned to work together for a period of 12 months “to agree creative guidelines for the films and television series to be developed by Amazon”.
Fast-forward to today (10 December) — almost exactly one year later — and there’s another announcement from the company.
Games Workshop has reached a final agreement with Amazon Content Services and the two firms have developed those creative guidelines as promised a year earlier. Amazon now has exclusive rights in relation to films and TV shows set within the Warhammer 40,000 universe.
This is awesome, right? If Amazon gets going on this, we could see another hit TV or video series ahead and more. However, there’s a reality check in today’s statement. The firm said the production processes in respect of these shows “may take a number of years”.
An elevated valuation
On top of that the company said there’s no change to its forecast for the 52-week period ending 1 June 2025. Meanwhile, City analysts predict normalised earnings will likely rise by modest single-digit percentages that year and the one after.
If Games Workshop didn’t have the Amazon carrot dangling in front of it, there’s a case to make that the business might have slipped into slow-growth mode. The forward-looking estimates for earnings have been quite low for some time.
Meanwhile, investor enthusiasm has driven the share price higher and the valuation looks pretty meaty these days.
With the share price near 13,900p, the forward-looking price-to-earnings (P/E) rating is running at about 27 for 2026. At that level, one of the biggest risks for new shareholders now is the possibility of a de-rating lower over the coming years.
Nevertheless, Games Workshop has a strong balance sheet and a well-defended market niche. Its products are popular and there’s the potential for a step-change higher in earnings ahead. So I think the business may be worth investors’ research and consideration time now with a long-term holding period in mind.
This post was originally published on Motley Fool
