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The FTSE 250 is home to some of the most exciting companies the UK has to offer. And while diversification is key to any successful portfolio, what if I could only select one stock from the index to lump all my money into?
It’s a thought-provoking question. And there are many factors I would have to consider to ensure I could make a return on my hard-earned cash.
A few made the final shortlist, but my choice has to be Games Workshop (LSE: GAW). Let me explain why.
Consistent growth
The main reason I like Games Workshop is because of the consistent growth it’s posted over the years.
Firstly, that’s regarding its share price. In the last five years, it’s climbed an impressive 130.6%. During the same period, the FTSE 250’s down 2.3%. In the last decade, the stock’s up an incredible 1,631.8%. Again, that vastly out-trumps the return of the wider index, which is up 19.8%.
The same can be said for its revenue, which has experienced remarkable growth in the last five years, rising an average of 16.7% a year.
Even in a cost-of-living crisis, it has put up a strong performance. For the 26 weeks to 26 November 2023, it posted record revenue of £247.7m. The business has also seen its earnings per share grow at an average rate of 32% a year over the last decade.
If I plan to have all my money tied up in just one company, I want to make sure it’s a business that delivers consistent results over the long run. Games Workshop meets that criteria.
A passive income
I also really like the stock as a passive income play. As I write, its dividend yield is 4.4%. That’s not the highest out there. Nevertheless, it does top the FTSE 250 average of 3.4%.
Games Workshop also has a strong balance sheet. It has minimal debt and plenty of cash to hand. It’s for that reason it only uses “truly surplus cash” to pay its shareholders. Dividends are never ever guaranteed, so it’s factors like these that are important for investors to consider.
A bright future
Finally, past performance is by no means an indication of future returns. Therefore, I must believe that Games Workshop can continue with its strong performance going forward.
With its core revenue continuing to grow, it’s now turning its attention to licensing revenue. Most notably, it has entered an agreement with Amazon that will see its Warhammer 40k turned into film and TV content. I reckon this could be an exciting move for the firm.
The risks
There are always risks when it comes to investing. Games Workshop’s no exception.
Firstly, while revenue growth has been impressive, there’s always the threat that sales could take a hit during tough economic periods as customers cut back on spending.
On top of that, there’s the argument to be made that the stock’s expensive. It trades on 22.5 times earnings, which is above the FTSE 250 average of around 12.7.
One to consider
Even so, while I would never put 100% of my net worth into one stock, Games Workshop does make up a sizeable chunk of my portfolio. I think investors should consider buying the stock today.
