Games Workshop share price up 17%! Too late to buy?

The world of retail is a difficult place. Walk down your local high street: there will be empty stores and not many people.

Even big names are struggling. Just take a look at Marks & Spencers’ most recent results.

There’s one company that seems to be bucking this trend and has even seen growth. What do they do?

Games Workshop (LSE: GAW), the war-game specialist, announced its positive trading update in a typically concise manner.

At just two paragraphs, the company announced that sales and profits are ahead on last year’s results.

In addition to this good news, Games Workshop announced that due to the timing of guaranteed income on new licences, royalties receivable were ”significantly ahead of the prior year”. Profit before tax for the six months to 1 December 2019 are sales of at least £140m and profit before tax of not less than £55m.

The share price for the business rose 13% following the news, but on Tuesday it dropped again by 3%. Are the shares a growth gem?

A call to arms

Over the previous five years, the Games Workshop stock price has amazingly risen over 700%. Consequently, the price-to-earnings ratio is on the high side, at 26. The dividend yield is only 2%.

Based on these numbers, I would normally determine that the share price is too rich for me. However, the previous few years have seen its revenue steadily grow.

In the current climate, I have shied away from retail stocks. I think Games Workshop could be different and may reward shareholders in the future.

For me, the difference is customer loyalty. In the post-Internet world, it’s hard to imagine people still playing with Warhammer. But they do. And even better for investors, the business has licenced its intellectual property through animation deals.

The business is well-moated against its competitors. If a new entrant wanted to take on Games Workshop, I think they would have difficulty replicating its success in building a brand and loyal fanbase.

The stock price isn’t cheap, and with the profits and brand that it has, I wouldn’t expect it to be.

As well as operating in the UK, the company has stores in North America, Europe, Australia, and Asia. In terms of Brexit risk, this may occur from the movement of goods from the UK to the EU, as well as the recruitment and retention of EU nationals.

In any case, I suspect the company is well prepared for Brexit and will hope to continue churning out profits and growth.

For me, this a classic example of a wonderful company at a fair price. If Games Workshop keeps posting these sorts of results, I don’t think anyone will complain, irrespective of the price they paid.

I think that’s got to be worth a shot.