Image source: Games Workshop plc
He FTSE 250 It can be a great place to look for stocks to buy. AND Games workshop (LSE:GAW) is a great example.
In the last 10 years, the company's shares have risen 1,623%. And I think it could still be a great investment even at current prices.
Shareholder profitability
If you had invested £1,000 in Games Workshop shares 10 years ago, you would have an investment today with a market value of £17,242. It's a fantastic performance, but the rising share price is no accident.
Since 2014, the company has increased its earnings per share by 1,536%. And having relatively few fixed assets to maintain means it has been able to pay significant dividends to shareholders.
Over the last 10 years, Games Workshop has returned dividends to its investors totaling £14.77 per share. So if you had used £1,000 to buy 195 shares a decade ago, you would have received a total of £2,880.
Adding this to the £17,242 I could sell my investment for today implies a total return of £20,122 on a £1,000 investment. That's an incredibly good return for a 10-year investment.
panorama
It is difficult to expect the same extraordinary returns in the future. But the basis of Games Workshop's impressive growth: its warhammer 40,000 franchise – is still in effect.
Intellectual property protection makes it impossible for other companies to replicate the company's products. That means there's no danger of customers switching to a competitor.
The rights to war hammer Franchises are an intangible asset, meaning they don't wear out like a physical asset like a machine does. As such, they do not need to be replaced periodically.
This is why Games Workshop has such low capital requirements. And while the company might be making more money, this is just as relevant as it was a decade ago.
Valuation
FTSE 250 shares can sometimes fly under the radar, but it's probably fair to say that many investors have heard of Games Workshop. Despite this, I think the share price today is eminently reasonable.
The stock is trading at a price-to-earnings (P/E) ratio of 23. That's reasonably high, but those low cash requirements mean this is equivalent to paying £3.2bn for a business that generates £181m a year .
In this type of company there is always the risk that a difficult period for the economy will cause a drop in demand. If this happens, I expect the dividend to fall and the share price to fall as well.
However, in the long term, the company has some impressive attributes that make it extremely attractive. It's a rare example of a stock you'd be willing to pay a high earnings multiple for.
A stock to consider buying
Warren Buffett says the best companies to invest in are those that grow without needing additional capital to support that growth. That's exactly what Games Workshop has done for the last 10 years.
I doubt the company can generate the same performance again. But it still generates huge returns on its tangible assets, making it a stock investors should consider carefully.
