£10,000 invested in Games Workshop shares over the past 5 years is worth…

An investment of £10,000 Games Workshop (LSE:GAW) shares over the past five years have a market value of £18,285. Add in £2,307 in dividends and the total return is over 100%.

That’s an outstanding return. And I think investors looking for stocks to buy can learn a lot from what the stock — and the underlying business — has done since 2020.

Lesson 1: measurement

Shares of Games Workshop may look expensive at a price-to-earnings (P/E) ratio of about 28. That’s a lot more FTSE 100 average and investors can bet on more growth in the future.

Importantly, however, the stock has been trading at a similar level in 2020 – and investors have done very well for it since then. The reason is that the company’s sales and profits have grown impressively since then.

P/E ratio of Games Workshop 2020-2025

Created in TradingView

Revenue more than doubled and earnings per share increased 143%. This is why the stock price has risen so much despite trading at a high level over the past five years.

The lesson for investors is that a high P/E ratio does not automatically mean that a stock is overvalued. If the business can continue to grow, its shares may become a commodity even if it earns a lot of money.

Lesson 2: assignments

For earnings, it is natural for investors to look at two things. One is a long track record of growing returns and the other is a wide gap between what the company is worth and what it is paying.

Games Workshop has not – over the past five years its distribution has turned around and it has returned almost all of its profits to shareholders. But it’s still a great dividend stock.

Games Workshop’s EPS vs. Dividends per share 2020-2025

Created in TradingView

As of 2020, the company’s shares have made up about 23% of its market average. And while growth has been steady and consistent, it has been substantial over time.

The lesson for investors is that there is more to a stock dividend than track records and payout ratios. Most important is the level of business, which is where Games Workshop excels.

Outlook

Games Workshop’s latest trading update reports strong growth across the board. Despite the exchange rates weighted by the reported statistics, things are moving in the right direction.

The company does not expect direct costs to rise as a result of the increase in the National Living Wage, but warned that suppliers may increase prices as a result. This is a potential risk going forward.

There is also uncertainty about tariffs from the US as the new administration takes office later this month. As a result, management has stopped providing guidance for the next six months.

Although costs are rising, I do not expect inflation to reach its 2022-2023 levels. And since I’ve seen Games Workshop cope well with that period, I expect the same if costs rise in 2025.

Model business

I hold shares in Games Workshop in my portfolio. And while I have my eye on value stocks from a buying perspective, few businesses are as strong as this one.

It is not unreasonable for the stock price to fall due to uncertainty about the possibility of higher costs. But the next time I look to invest, this will be on the list of stocks I will consider.