Picture supply: Video games Workshop plc
Proudly owning shares in Warhammer maker Video games Workshop (LSE: GAW) has been very profitable lately. Not solely is the corporate a frequent dividend payer, however the Video games Workshop share worth has elevated by 252% over the previous 5 years.
In different phrases, the shares have greater than tripled in 5 years.
With information of a probably profitable tie up with Amazon introduced in the present day (18 December), may they triple once more within the coming 5 years.
Potential development drivers
For a share to triple in worth, usually traders should assume its future enterprise prospects are markedly higher than its present ones, not simply barely rosier.
Within the case of Video games Workshop, I believe that is true. The Amazon tie-up is an efficient illustration of why.
As Video games Workshop has invested in growing mental property property like fantasy universes and characters, it could actually additional exploit them while not having to spend a lot cash growing them additional. That might be a really worthwhile type of enterprise. Within the first half of its monetary yr, the corporate made round £11m of working revenue from licensing offers.
The agency has now granted unique rights to Amazon to develop movies and tv collection primarily based on the Warhammer 40,000 franchise. Whether or not any initiatives finally ends up truly getting produced stays to be seen. But when they do, that might convey legions of recent gamers onto Video games Workshops franchises.
These franchises are already massively worthwhile. Attributable to its unique mental property rights, the corporate can generate excessive revenue margins from its buyer base of loyal avid gamers.
Over the previous 5 years, revenues grew 214% and incomes per share by 221%. These are distinctive development charges in comparison with what most FTSE 250 companies can obtain over a five-year interval.
However I truly reckon Video games Workshop would possibly continue to grow at such charges – and even greater. Its confirmed enterprise mannequin is a license to print cash. If Amazon develops a movie or tv collection, that might see already sturdy buyer demand soar.
Doable challenges
Nevertheless, a booming enterprise doesn’t at all times equate to a booming share worth.
The Video games Workshop share worth already trades on a price-to-earnings ratio of 24. That’s greater than I’m normally prepared to pay even for a high-quality share.
The ratio might be defined by traders already factoring in very excessive expectations to the Video games Workshop share worth. So sturdy outcomes might not essentially imply equally sturdy worth good points. In the meantime, any disappointment may damage the share worth.
For instance, the corporate has restricted manufacturing capability so if there was an issue like a fireplace shutting down its foremost manufacturing unit, gross sales and earnings may take successful. Whereas I believe the Amazon tie-up is nice information, there’s a threat that it leads administration to get distracted from its foremost present enterprise.
Regardless of the dangers, although, I’d like to personal the shares.
Will they triple within the coming 5 years? I see it as attainable.
However that valuation does hassle me. It is just too excessive for my consolation stage. So, for now, I’ll keep on the aspect traces and never purchase the shares but.
