GAW.L - GAMES WORKSHOP - a valuation

Recently, the directors reported "pre-tax profits in repsect of the year end 25 may 2001 are unlikely to meet current market consensus estimates".

Consequently, my shares too a dive. Grrr. Let's ask ourselves the question: are we getting an acceptable return on our money?

If I perform a log-least squares fit for the EPS for the last decade on GAW, including analysts forecasts, I obtain an R2 of 0.0% and a median of 29p. The R2 (R-squared) of 0 is pretty impressive: it means that there's no correlation between EPS valus and time. So let me apply a cyclic model, and assume that in future GAW will earn a return of 29p pa. Applying a "fair" multiple of 10 gives gives a target price of 290p, which is below the price of 372.5p that I I saw in a recent quote. If I appy a multiple of 13 (but why should I?), I get a value of 377p, suggesting that GAW is fairly valued at this level.

So GAW looks like it's overvalued at this level.

Applying a Greenblatt Earnings Yield idea, the median operating profit of GAW over the last 10 years is 12.35m. I assume that this is about EBIT. For EV: using a market price of 372.5p, GAW has 31.2m shares in issue, giving it a market cap of 116.2m. Its net debit is 3.4m (2.0 long term liabs + 18.4 current liabs - 17.0 cash) . So its EV is 119.6m (116.2+3.4) giving it an GEY of 10%. That kind of return is acceptable.

It would be interesting to see how much further GAW drops (on 5 jan 2011 its price went to 353p), and whether I have the guts to buy more.