Picture supply: Video games Workshop plc
In relation to investing, fantasy is usually a pricey mindset. That doesn’t imply that pragmatic investing and fantasy worlds don’t go collectively, although. Take Video games Workshop (LSE: GAW) for example. Video games Workshop shares have been star performers over the long run, greater than doubling in worth over the previous 5 years.
Particularly, they’re up 124% throughout that interval.
Not solely that, however the FTSE 250 firm has been an everyday dividend payer, with as many as 5 dividends in some years. The present dividend yield is 3.3%.
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However whereas the dividends appeal to me, what excites me most concerning the concept of proudly owning Video games Workshop shares is the potential for additional value good points. I feel the shares may double within the coming decade.
Sturdy enterprise mannequin
That’s an bold expectation. However I feel Video games Workshop has an important enterprise mannequin.
Lots of its merchandise are distinctive. By constructing fantasy universes, it will probably encourage clients to turn into increasingly engaged in its merchandise, doubtless which means they turn into much less value delicate over time.
That may be a formulation for rising gross sales and earnings. Have a look at how the corporate’s gross sales revenues have soared lately.
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The backside line development has additionally been spectacular. Web revenue has additionally jumped lately.
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One thing attention-grabbing concerning the earnings isn’t just the expansion trajectory but additionally absolutely the quantity. Final yr, the corporate made post-tax earnings of £135m on gross sales of £471m. That exhibits simply how worthwhile the enterprise mannequin is, with a internet revenue margin of 29%.
Valuing the shares
The Metropolis is clearly alert to the chances right here.
Video games Workshop shares presently commerce on a price-to-earnings ratio of 24. That may be a bit pricier than I want to pay and certainly is the rationale I don’t presently personal Video games Workshop shares. In the event that they had been low cost sufficient I might snap them up in a heartbeat.
However that ratio relies on present earnings. Not solely have complete earnings grown handily on the firm, so too have earnings per share.
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If earnings per share continue to grow, I count on the share value to do the identical.
What would it not take for them to double within the coming decade? For my part, principally simply extra of the identical. Video games Workshop has a confirmed enterprise mannequin that’s buzzing alongside lucratively. I count on that to proceed. New income streams like movie licensing rights may add much more development drivers for the enterprise.
Will it occur?
Though the corporate is working with Amazon to deliver its fantasy world to each large and small display, it stays to be seen whether or not that can actually be a cash spinner.
Video games Workshop’s concentrated manufacturing footprint may be a danger if, for any purpose, its major manufacturing website has to cease working for a interval.
However I feel this confirmed enterprise can run and run. If it efficiently navigates hurdles alongside the best way, I reckon Video games Workshop shares may certainly double over the approaching decade.
