Games Workshop share price forecast: is the Warhammer maker heading for a pullback?
09:19, 19 June 2020
Games Workshop shares have already recouped and actually went over their all-time high seen during the early days of February, delivering a gain of 121 per cent since the stock reached its bottom this year on March 23 after the Covid-19 sell-off.
The popularity of the Warhammer game has been behind the stock’s success during the entire year, as the company reported record sales for the half-year ending in December 2019. This followed a surge in all of its revenue segments but was mostly fuelled by a big jump in its trade segment, which consists of sales made to third-party vendors.
Trade revenues increased in all of the locations that the company serves, but primarily in the UK, Europe and North America, which are Games Workshop’s biggest markets.
Additionally, the operating margin showed an important jump from 32 to 39 per cent compared to the year before. This helped the company to achieve a 44 per cent increase in basic earnings per share, ending the half-year period at £145.90 per share.
The business’ past positive performance, a recent trading update which signalled positive year-end results and the fact that stores have started to reopen across Europe and North America seem to be fuelling the stock’s recent rally. However, it is important to ask if this recent buying frenzy is sustainable over the next few sessions.
Games Workshop share price outlook
Games Workshop stock price history shows that the company’s shares broke through their February 7 all-time high on May 27, as the UK government announced its plans to progressively lift lockdown measures imposed to contain the spread of the virus.
We can see in the chart above how there was a big surge in volume during that day. It helped to lift the stock’s price beyond that resistance level and, as a result, it also expanded the volatility of the stock quite a bit, as shown by the width of the Bollinger bands, which are now wide open.
One thing worth noting is that ever since that big jump, the stock has remained relatively flat, with an important resistance seen at the £79 level and a declining trading volume. This could point to a Games Workshop share price drop in days to come, with the stock potentially finding support at its 20 DMA if that move is to occur.
In my view, volume may be the big tell for what Games Workshop shares could do next. Right now it seems that the stock may be losing momentum and given the fact that the £79 resistance has proven difficult to overcome, investors may pull back in the following session, back to the 20 DMA support at £75, leaving traders with the opportunity of shorting the stock.
On the other hand, the MACD seems to be throwing a potential sell signal, which could further strengthen the thesis that GAW stock is heading for a pullback in short notice.
However, it’s worth noting that based on the stock’s historical pattern, a big push could also be seen in the next few days towards the upper Bollinger and, in that case, GAW would be heading towards the £83 level.
What is your sentiment on EA?
Games Workshop share news
Games Workshop Group plc recently released a trading update for the financial year ended in May 2020, to give investors a sense of what they may expect to see once the company releases its full annual report.
In this update, the company unveiled positive news including the fact that it is progressively reopening its stores around the world, with 306 outlets out of 532 open in 20 countries and more to come as lockdown measures continue to be lifted in each location.
Additionally, the company provided guidance for both revenues and profitability, with sales potentially coming in at £270m for the year and profits ending the year at £85m.
This would result in basic earnings per share of around 260 pence per share
Based on those estimates, the company would be trading at 30 times its earnings per share at this level, which is a quite high P/E ratio that could further sustain the thesis of a potential technical and fundamentally-driven pullback.
Finally, Games Workshop also provided an update on its liquidity position, estimating a cash balance of roughly £50m by the end of May and a £25m facility it can tap if needed.
It is important to note that the board of directors declined to provide guidance on the group’s potential future performance based on ongoing uncertainties related to the pandemic.
Games Workshop share price forecast
Analysts surveyed by the Financial Times are forecasting a 12-month price target between £80 and £89, which would give the stock an upside between 1 and 12 per cent if those targets are to be reached.
Considering how close the stock is to both of these price targets and how relatively low trading volumes have been in the past two sessions, a bearish thesis gains much more credibility than a bullish stand at this point.
With that in mind, based on this Games Workshop share price forecast, a short position could be taken on this stock with a stop-loss at £80 if the stock manages to jump above its price channel resistance with a potential exit price at £75 – GAW’s 20 DMA support line – if the pullback does occur.
However, if some momentum does pick up in the following sessions, a short-term target at £83 could be the next stop, with a stop-loss at 78.5 in case the stock falls below the support-resistance line seen in the price channel as well.
Bottom line
Games Workshop’s latest positive financial performance and expectations that lockdown measures will continue to be lifted around the world have been pushing the stock up in recent sessions.
However, a pullback may be on the horizon based on a decline in momentum and a potential overvaluation based on the stock’s fundamentals.
Read more: Aston Martin share price forecast: best buy 2020?
Markets in this article