Bargain hunters gobble up Domino's Pizza, but Games Workshop just got cheaper

Buying Games Workshop shares has become an expensive hobby, but do they now offer value? Graeme Evans also looks at a recovering pizza giant.

Long-term investors who were lucky enough to have put Games Workshop or Domino's Pizza into their portfolios a few years ago have been rewarded handsomely by these two FTSE 250 stocks.

Games Workshop shares hit a peak of 3,886p last month for a rise of 1,843% since the start of 2008, while Domino's breached 400p in July 2016 following a gain of 900% over the prior decade.

Both stocks continue to enjoy plenty of support, even if their respective share prices have drifted lower in recent weeks.

Games Workshop added fuel to these jitters today by mentioning it faced some unspecified "uncertainties" over the remainder of the 2018/19 financial year. Despite current trading being in line with hopes, shares dropped 8% to 3,050p.

In contrast, Domino's Pizza shares were 8% higher at 280.6p after it reported impressive third quarter trading figures and said its strong balance sheet meant it would add a further £25 million to its share buy-back programme.

Like-for-like sales were up 2.2% against strong comparisons with a year earlier, with the busiest day for Domino's being the last Saturday in September when Europe's golfers all but sealed Ryder Cup victory over the United States.

Analysts at Canaccord Genuity and Numis Securities think there's scope for the shares to set a new record, with target prices of 425p and 458p respectively.

In the case of Numis, they noted that Domino's was trading on a projected 2019 price earnings (PE) multiple of 13.9x, which is a 10-year low for the company.

Source: TradingView (*)      Past performance is not a guide to future performance

They added: "We view this as highly attractive for an asset light, cash generative business offering 11% earnings per share compound growth between 2018 and 2022." Numis said the equivalent Domino's businesses in the United States and Australia were trading at much higher multiples of 27x and 26x.

Domino's remains on track to open another 60 franchisee-run stores in the financial year, with the pace picking up after only 22 were added in the first half. This acceleration should reassure investors after a summer in which there were reports alleging discontent among some franchisees about the expansion plans.

The company has 1,236 stores across six markets but wants to extend this to around 1,600 in the medium term. As well as the UK, it owns or controls Domino's operations in Switzerland, Iceland, Norway and Sweden, and is a minority shareholder in Germany.

Today's brief statement from Games Workshop said that trading in recent weeks had gone well, with sales ahead of last year and profits in line with the prior year. However, this was overshadowed by its "uncertainties" warning.

The company is best known for Warhammer, which requires the collection, modelling and playing of fantasy war games. It controls every aspect of the hobby, from the design and manufacture of models and game systems through to the 489 stores in 23 countries and the books and magazines that promote them.

Source: TradingView (*)      Past performance is not a guide to future performance

While social media has made it easier for fans of the games to interact, the remarkable aspect to the Games Workshop story is that it has continued to thrive despite our love of screens and gadgets.

The company, which is now worth £1.1 billion, trades on a PE multiple of 18.2x, with dividend yield of 3.9%. It boasts an attractive list of shareholders, with Investec Asset Management last month holding 9.6% and Schroders 5.2%.

*Horizontal lines on charts represent previous technical support and resistance.