Everybody loves a multi-bagger as they can really turbo-charge your overall investment returns. But they don’t come along that often.
It takes a special company to deliver that kind of return, especially if they can do it in a short period, as this amazing growth stock has done.
Games theory
FTSE 250 growth hero Games Workshop Group (LSE: GAW) is up an incredible 1,175% over five years, turning £10,000 into £127,500. If you buy a stock like this at the right time, it can transform your wealth.
Today it is up another 6.35% to 405p after its half-year report showed revenues, profits and dividends continuing to rise at a record pace.
The group has done this by delivering a niche product for a fiercely loyal audience. The Games Workshop share price is flying high thanks to a committed army of miniature war game enthusiasts. Brands such as Warhammer Age of Sigmar and Warhammer 40,000 enjoy dedicated communities, and the company has proved adept at building engagement with their followers.
Gams Workshop has a successful website driving sales but has made a real success of its physical stores, by making them an exciting destination for Warhammer fans, staffed by like-minded enthusiasts.
This is a global operation too, and may break new ground as it develops a TV series, based on the Eisenhorn series of novels, although that is still at an early stage, with no production contracts signed yet.
Workshop of the world
Revenues grew £148.4m in the year to 1 December, a rise of 18.5% year-on-year, with operating profits up 45% to £59.2m.
Management declared a dividend of 45p per share, in line with its policy of “distributing truly surplus cash”, and the Games Workshop stock now delivers a forecast yield of 2.6%, which is impressive given recent growth.
Trolls and goblins may not be your thing, but those who love that world, live it. Games Workshop has to be careful though, because this kind of consumer can easily feel let down if it makes a wrong move, and the planned TV show evidently has risks.
Hammering away
Given the group’s instinctive feel for its customer base, it is a risk worth taking. TV is a hit and miss business, but imagine what a successful TV show could do for Games Workshop? If it works, this could only be the start of big growth.
Naturally, the stock is no longer cheap, trading at 26.9 times earnings. Yet there is no sign of it slowing up, with the share price doubling in the last year. I worried about the high valuation in November, but still rated it a buy. I reckon it is today, as well.
Naturally, you cannot expect Games Workshop to turn £10,000 into six figures over the next five years, given its sizeable market cap of £2.2bn. City analysts reckon earnings will slow, from a breakneck 126% in 2017 and 94% in 2018, to 12%, 5% and 2% over the next three years.
However, I reckon Games Workshop still has plenty of fight left in it.