A £10,000 funding in Video games Workshop (LSE:GAW) shares made 5 years in the past has a market worth of £18,285. Add in £2,307 value of dividends and the full return is over 100%. 

That’s an excellent return. And I feel traders in search of shares to purchase can be taught so much from what the inventory – and the underlying enterprise – has achieved since 2020.

Lesson 1: valuation

Video games Workshop shares would possibly look costly at a price-to-earnings (P/E) ratio of round 28. That’s effectively above the FTSE 100 common and traders can be courageous to guess on the a number of increasing additional sooner or later.

Importantly, although, the inventory was buying and selling at an identical stage in 2020 – and traders have achieved very effectively with it since. The reason being the corporate’s gross sales and income have grown impressively since then.

Video games Workshop P/E ratio 2020-2025

Created at TradingView

Revenues have greater than doubled and earnings per share are up 143%. That is why the share price has climbed considerably regardless of buying and selling at a excessive a number of 5 years in the past. 

The lesson for traders is {that a} excessive P/E ratio doesn’t robotically imply a inventory is overvalued. If the enterprise can continue to grow, its shares is perhaps a discount even at a excessive earnings a number of.

Lesson 2: dividends

With dividends, it’s pure for traders to search for two issues. One is a protracted file of accelerating returns and the opposite is a large hole between the quantity a agency makes and the quantity it pays out.

Video games Workshop has neither – during the last 5 years its distributions have fluctuated and it has returned virtually all of its web earnings to shareholders. However it has nonetheless been an incredible dividend inventory. 

Video games Workshop’s EPS vs. dividends per share 2020-2025

Created at TradingView

Since 2020, the corporate’s dividends have totaled round 23% of its market cap. And whereas the expansion hasn’t been regular and constant, it has been substantial over time.

The lesson for traders is that there’s extra to dividend shares than observe information and payout ratios. What issues most is the standard of the enterprise, which is the place Video games Workshop stands out.

Outlook

Video games Workshop’s newest buying and selling replace reviews robust progress throughout the board. Regardless of change charges weighing on reported figures, issues are shifting in the appropriate course. 

The corporate doesn’t anticipate direct value will increase because of the Nationwide Residing Wage will increase, however it did warn that suppliers would possibly increase costs because of this. That is potential threat going ahead.

There’s additionally uncertainty round tariffs from the US as the brand new administration takes over later this month. In consequence, administration has held off giving steering for the subsequent six months. 

Even when prices rise, I’m not anticipating inflation to achieve its 2022-2023 ranges. And having seen Video games Workshop cope admirably throughout that interval, I anticipate one thing comparable if prices rise in 2025.

A mannequin enterprise

I personal shares in Video games Workshop in my portfolio. And whereas I’ve my eye on a variety of shares from a shopping for perspective, few companies are as robust as this one.

It’s not unreasonable for the share price to fall because of uncertainty in regards to the prospect of upper prices. However subsequent time I’m seeking to make investments, this will probably be on the record of shares I’ll be contemplating.