Here's Why I Think Games Workshop Group (LON:GAW) Might Deserve Your Attention Today

It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. But as Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.

In contrast to all that, I prefer to spend time on companies like Games Workshop Group (LON:GAW), which has not only revenues, but also profits. While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

Check out our latest analysis for Games Workshop Group

Games Workshop Group's Earnings Per Share Are Growing.

As one of my mentors once told me, share price follows earnings per share (EPS). That makes EPS growth an attractive quality for any company. As a tree reaches steadily for the sky, Games Workshop Group's EPS has grown 24% each year, compound, over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away winners.

I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). The good news is that Games Workshop Group is growing revenues, and EBIT margins improved by 4.2 percentage points to 40%, over the last year. That's great to see, on both counts.

The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.

Fortunately, we've got access to analyst forecasts of Games Workshop Group's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are Games Workshop Group Insiders Aligned With All Shareholders?

I always like to check up on CEO compensation, because I think that reasonable pay levels, around or below the median, can be a sign that shareholder interests are well considered. For companies with market capitalizations between UK£2.9b and UK£8.6b, like Games Workshop Group, the median CEO pay is around UK£1.6m.

The Games Workshop Group CEO received total compensation of just UK£667k in the year to . That looks like modest pay to me, and may hint at a certain respect for the interests of shareholders. CEO compensation is hardly the most important aspect of a company to consider, but when its reasonable that does give me a little more confidence that leadership are looking out for shareholder interests. I'd also argue reasonable pay levels attest to good decision making more generally.

Should You Add Games Workshop Group To Your Watchlist?

You can't deny that Games Workshop Group has grown its earnings per share at a very impressive rate. That's attractive. The fast growth bodes well while the very reasonable CEO pay assists builds some confidence in the board. So I'd argue this is the kind of stock worth watching, even if it isn't great value today. Even so, be aware that Games Workshop Group is showing 2 warning signs in our investment analysis , you should know about...

Although Games Workshop Group certainly looks good to me, I would like it more if insiders were buying up shares. If you like to see insider buying, too, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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