Games Workshop shares surge after release of positive trading update

Games Workshop (GAW) shares surged 11% to 9,660p per share in afternoon stock trading in London after the company revealed a jump in sales during the three-month period ended on 30 August.

The manufacturers of the Warhammer games reported £90 million in sales during this quarter, which is £12 million more than what the company sold during the same period last year. Meanwhile, operating profits for the three-month period landed at £45 million, representing a 61% jump compared to the £28 million the firm brought in a year ago.

The company cited the pandemic as one of the key drivers for this exceptional growth, as lockdown measures have resulted in a boost in the demand for its products since sheltered gamers relied on the firm’s products to entertain themselves.

Most of the sales have come from the firm’s online channels, as the company’s retail establishment are still seeing lower traffic amid the virus situation.

Meanwhile, Games Workshop also cautioned investors that the long-term impact of the pandemic in the Group’s finances and operations is still uncertain, especially now that virus cases in the UK have been spiking.

Finally, Games Workshop’s Board of Directors declared a dividend of 50p per share which will be paid on 23 October.

How are Games Workshop shares performing lately?

Games Workshop shares have jumped nearly 170% since the stock touched its March bottom at 3,575p per share, as pandemic demand has boosted the company’s financial results during the year since consumers relied on the firm’s games to entertain themselves while staying at home.

The stock is also up 52% year-to-date and 110% during the last 12 months compared to a year-to-date and 1-year loss of 20.6% and 18.4% respectively posted by the FTSE 100.

Are Games Workshop shares a buy after today’s rally?

Games Workshop shares jumped above a downward price channel that started forming in late July as the number of virus cases all over Europe were heading lower, which threatened to remove one of the key short-term drivers for this temporary boost in sales.

However, now that cases in the region are ticking up again, GAW shares may regain their lost momentum, especially now after this positive report was released.

On the other hand, the positive trend in sales contradicts the downward momentum the stock was seeing, which is why investors were eager to buy GAW shares today, as this jump in revenues could signal that higher levels of demand for the company’s goods are not just a one-off thing but rather an actual improvement in the business’ customer base and consumption levels.

Positive technicals

From a technical perspective, the stock’s RSI is breaking through its upper trend line as well – which is a positive sign – although the price action has left a big gap at the 9,100p level, which threatens the short-term stability of this bull run.

Meanwhile, the intraday activity shows that traders pushed the price too high too fast, as the company’s shares failed to maintain the 10,500p level during the session, settling much lower at around 9,500 – 9,700 afterwards.

This price gap and the big drop that came after the initial push provide some evidence that sellers may end up outpacing buyers in the next few sessions.

Traders should keep an eye on how the price action behaves in relation to that price channel, as this renewed momentum should lead to the creation of a new uptrend, although a temporary retest of the channel could take place if market participants feel the gap should be filled before the stock moves higher – which would provide further stability to an upcoming uptrend.