The stock of Games Workshop Group PLC (OTCPK:GMWKF, 30-year Financials) gives every indication of being significantly overvalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $171.9 per share and the market cap of $5.5 billion, Games Workshop Group PLC stock shows every sign of being significantly overvalued. GF Value for Games Workshop Group PLC is shown in the chart below.
Because Games Workshop Group PLC is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 19% over the past three years and is estimated to grow 14.00% annually over the next three to five years.
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Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. Games Workshop Group PLC has a cash-to-debt ratio of 2.13, which which ranks better than 71% of the companies in Travel & Leisure industry. The overall financial strength of Games Workshop Group PLC is 8 out of 10, which indicates that the financial strength of Games Workshop Group PLC is strong. This is the debt and cash of Games Workshop Group PLC over the past years:
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Games Workshop Group PLC has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $395.6 million and earnings of $3.851 a share. Its operating margin is 39.86%, which ranks better than 97% of the companies in Travel & Leisure industry. Overall, the profitability of Games Workshop Group PLC is ranked 8 out of 10, which indicates strong profitability. This is the revenue and net income of Games Workshop Group PLC over the past years:
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term stock performance of a company. A faster growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Games Workshop Group PLC is 19%, which ranks better than 93% of the companies in Travel & Leisure industry. The 3-year average EBITDA growth rate is 32.7%, which ranks better than 86% of the companies in Travel & Leisure industry.
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Games Workshop Group PLC's ROIC is 76.76 while its WACC came in at 8.51. The historical ROIC vs WACC comparison of Games Workshop Group PLC is shown below:
In closing, Games Workshop Group PLC (OTCPK:GMWKF, 30-year Financials) stock appears to be significantly overvalued. The company's financial condition is strong and its profitability is strong. Its growth ranks better than 86% of the companies in Travel & Leisure industry. To learn more about Games Workshop Group PLC stock, you can check out its 30-year Financials here.
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