Games Workshop Group PLC (LSE:GAW), a leisure products company based in United Kingdom, saw a significant share price rise of over 20% in the past couple of months on the LSE. As a small cap stock, hardly covered by any analysts, there is generally more of an opportunity for mispricing as there is less activity to push the stock closer to fair value. Is there still an opportunity here to buy? Today I will analyse the most recent data on GAW’s outlook and valuation to see if the opportunity still exists. Check out our latest analysis for Games Workshop Group
Is GAW still cheap?GAW appears to be overvalued by 99% at the moment, based on my discounted cash flow valuation. The stock is currently priced at £20 on the market compared to my intrinsic value of £10.04. This means that the buying opportunity has probably disappeared for now. Another thing to keep in mind is that GAW’s share price is quite stable relative to the rest of the market, as indicated by its low beta. This means that if you believe the current share price should move towards its intrinsic value over time, a low beta could suggest it is not likely to reach that level anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range again.
Can we expect growth from GAW?Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. With revenues expected to grow by a double-digit 13.55% over the next couple of years, the outlook is positive for GAW. If the level of expenses is able to be maintained, it looks like higher cash flows is on the cards for the stock, which should feed into a higher share valuation.
What this means for you:
Are you a shareholder? GAW’s optimistic future growth appears to have been factored into the current share price, with shares trading above its fair value. However, this brings up another question – is now the right time to sell? If you believe GAW should trade below its current price, selling high and buying it back up again when its price falls towards its real value can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping tabs on GAW for some time, now may not be the best time to enter into the stock. The price has surpassed its true value, which means there’s no upside from mispricing. However, the positive outlook is encouraging for GAW, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Games Workshop Group. You can find everything you need to know about GAW in the latest infographic research report. If you are no longer interested in Games Workshop Group, you can use our free platform to see my list of over 50 other stocks with a high growth potential.