I’d buy Games Workshop shares before they hit the FTSE 100!

Games Workshop (LSE: GAW) shares are up more than 40% in the last six months.

FCS index 250 The miniature wargames maker is going from strength to strength, increasing its market value to £4.5 billion, making it the 89th largest company among those eligible, according to the latest data I have. FTS 100.

If nothing changes, the company will look like it has failed the UK’s main index certificate.

IP strength

While a seat at the table with the big boys won’t make much of a difference – other than a dose of prestige and a possible jump in share prices as Footsie ETFs rush into the shares – it is a sign of how well the company has performed in recent times. If I didn’t already have a position in the company, I would buy shares in the owner of the Warhammer brand today. Here’s why.

The main reason is the strength of the firm’s intellectual property, or “IP.” A good IP generates serious loyalty and encourages customers to open their wallets for all sorts of products.

Lion King The remake became one of the highest-grossing films ever made. Was it because people wanted to go to the movies to see a story about featureless CGI lions? No! It was IP! They had fond memories of the first film and were happy to spend the money to see Simba and his crew again.

Evidence of the power of Warhammer’s intellectual property comes from the world of video games. For those who don’t know, the gaming industry is going through something of a crisis. Previously respected AAA development studios have been releasing flop after flop. I would need the fingers of both hands to count the notable failures this year alone.

Amidst this turmoil, a little game appeared called Warhammer 40,000: Space Marine 2 and it sold like hot cakes. In just a couple of months, 4.5 million copies flew off the proverbial shelves. One insider said it’s selling faster than any other Rock or Earthquake games.

Great influence

The effect for Games Workshop is that it plans to triple its licensing fees from £13 million to £30 million this year. This is a handy addition to the company’s total revenues of £260m, and remember that licensing intellectual property is a very high-margin business.

A sequel is probably on the horizon, too, but the real benefit is brand recognition. How many kids can ask mom and dad for a Warhammer set for Christmas after playing that cool new computer game? I think quite a lot.

Is this a risk-free investment? Of course not. There is no stock. And one of my big concerns is that the firm’s insistence on manufacturing in the UK means that expensive products leave them exposed if standard of living problems worsen.

Overall, though, I think it’s something worth considering for equity investors. The company will celebrate its 50th anniversary next year, and I wouldn’t be surprised if the strength of the brand and company continues for another 50 years.