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It’s not typically {that a} inventory drops after reporting forecast-beating buying and selling numbers. However Video games Workshop (LSE:GAW) — for my part the FTSE 100 best development share — has achieved simply that.
At £183.70 per share, the tabletop gaming large’s fallen 3% on Tuesday (13 January). During the last month it’s now down roughly 6%, although revenues and income hold beating expectations and money flows proceed to increase.
So what’s occurring with Video games Workshop’s share value? And does current weak point symbolize a helpful dip-buying alternative?
Sturdy outcomes
Not everyone seems to be conversant in the FTSE firm’s operations, so let me present a one-line introduction. Video games Workshop is the worldwide chief in fantasy tabletop gaming — it designs, manufactures and sells video games methods, miniatures, paints and equipment that hobbyists eagerly snap up.
Its share value leapt to contemporary highs in December when it predicted core income of not less than £310m, and minimal licensing income of £16m, for the six months to November. It additionally tipped pre-tax revenue of not less than £135m.
At present the Warhammer maker surpassed expectations once more. It introduced core income of £316m, up 17% 12 months on 12 months, and an 88% drop in licensing income to £16m. Licensing gross sales benefitted the 12 months earlier than from the blockbuster launch of its House Marine II online game.
Nonetheless, an 11% rise in headline gross sales to £332.1m drove revenue earlier than tax to £140.8m. This was additionally up 11% 12 months on 12 months.
To high issues off, internet money leapt to £112.5m from £79.1m a 12 months earlier. Reflecting its robust efficiency, the enterprise introduced a 110p per share dividend, its sixth of the 12 months.
Valuation difficulty
Video games Workshop isn’t proof against broader weak point in shopper spending. However as at this time’s outcomes present, its place as undisputed market chief in a distinct segment business supplies it with gorgeous resilience.
So why has the inventory dropped regardless of Tuesday’s outcomes? They had been nice, certain, however they weren’t excellent, with tariff-related prices coming in at £6m over the half 12 months.
Bills like this stay a risk given present US commerce coverage, and the actual fact Video games Workshop manufactures all its product right here within the UK.
The difficulty is that Video games Worksop shares look costly on paper, even after current weak point. Its forward-looking price-to-earnings (P/E) ratio is 34 occasions. At these ranges, buying and selling numbers have a tendency to want to blow the doorways off.
Whereas undoubtedly wonderful, the market clearly thinks the FTSE agency hasn’t achieved fairly sufficient to justify that valuation at this time. Its gorgeous share value rise across the finish of final 12 months has additionally seen buyers pause for thought.
Is Video games Workshop a Purchase?
On steadiness, then, are Video games Workshop shares a Purchase for me proper now? My private view is sure — I truly topped up my holdings within the firm final week.
Whereas it’s expensive on paper, I feel the FTSE 100 inventory is absolutely worthy of a premium valuation and is one to contemplate. It stays in pole place to capitalise on the booming fantasy gaming market. And plans to step up licensing of its red-hot Warhammer IP with the likes of Amazon may unleash an thrilling new development part.
