As the air comes out of the AI bubble, this FTSE 100 stock marches on

In a week where the FTSE 100 fell 1.9% and the S&P 500 posted a 2.25% decline, Games Workshop (LSE:GAW) shares jumped 16%. And it’s not just hype – the business is doing incredibly well.

The firm reported 14% revenue growth and a 6% increase in pre-tax profits in its six-month update. The stock was up as a result, so is this a good place to hide from falling share prices?

What’s been going on?

Games Workshop’s growth numbers are impressive by themselves. But in the context of what’s been going on in the stock market recently, I think they’re outstanding. 

North America is the company’s largest market. But the consumer discretionary part of the S&P 500 has not had a good year by any means, as sales growth has faltered.

One reason for this is US consumers are making student loan repayments that were paused during the pandemic. Despite this, Games Workshop has generated some strong growth.

The firm’s margins are lower and this might have a lot to do with the impact of tariffs. This remains a risk, but the headline news from the latest update looks very impressive to me.

A hiding place?

In general, discretionary stocks don’t make good hiding places when things are going wrong. They’re vulnerable to budgets getting strained and consumers having to cut back.

That’s an ongoing risk, but rising sales indicate that it’s one that Games Workshop has been managing well – at least, so far. And this probably isn’t an accident. 

The firm’s unique intellectual property means it’s virtually impossible for its customers to trade down to a cheaper alternative. That puts it in an extremely strong position. 

I think this is a big part of why the business has managed to keep growing during what has been a tough time for the wider sector. And that should be a durable advantage for the firm.

Passive income

In its update, Games Workshop announced a £1 per share dividend to be paid in January. This takes the total for the financial year to £3.25, implying a 1.77% yield at today’s prices.

That doesn’t sound like a lot – and it isn’t, compared to what else is on offer elsewhere in the stock market. But I actually think this is a firm with some impressive dividend credentials.

One thing to note is that £3.25 is a 75% increase on the previous year’s return. So if it keeps growing (and the latest signs are very positive) it could generate good income over time.

It’s also worth pointing out that Games Workshop has very low capital requirements. This allows it to return almost all of its free cash to shareholders, which is another strength.

Final Foolish takeaways

The stock market as a whole seems to be under pressure at the moment, but Games Workshop has been pretty resilient. And I mean that both in terms of the stock and the business.

I’m not in a tearing hurry to buy more of the stock at the moment. But that’s only because it’s already the largest investment in my Stocks and Shares ISA – and the latest move just reinforced that.

The post As the air comes out of the AI bubble, this FTSE 100 stock marches on appeared first on The Motley Fool UK.

More reading

• Thank goodness I own this FTSE 100 share that’s up 13% today!
• Games Workshop’s share price surges 12.5% on stunning results! What’s next?
• 3 FTSE 100 shares to target a 19% annual return
• 30% of my SIPP is invested in 1 magnificent UK stock!
• I can’t believe what £10,000 invested in Games Workshop shares 10 years ago is now worth

Stephen Wright has positions in Games Workshop Group Plc. The Motley Fool UK has recommended Games Workshop Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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