CD Projekt: Strong Q3, But Valuation Leaves No Room For Error
Photo Credit: © TopMicrobialStock / Adobe Stock — used under Standard Editorial License.
The following is a 250-word excerpt from my full article on Seeking Alpha: A crowdsourced financial market content service where investors can share ideas, discuss news, and make informed investment decisions. Below is a link to the full article:
https://seekingalpha.com/article/4856015-cd-projekt-strong-q3-but-valuation-leaves-no-room-for-error
Summary
CD Projekt delivered strong Q3 results driven by late-cycle monetization of Cyberpunk 2077, confirming catalog durability but offering no improvement in visibility into the next growth cycle.
Profitability benefitted from lower amortization and accounting effects, while development spending and headcount continued to rise, pressuring near-term earnings despite strong reported margins.
CD Projekt trades at a premium forward EV to EBITDA multiple near peer highs, even as consensus expects EBITDA to decline roughly 15% over the next fiscal year.
A valuation based on a still-premium 38x forward EV to EBITDA implies a $13.50 price target, representing approximately 22% downside from current levels.
Investment Thesis
I continue to reaffirm a sell rating for CD Projekt S.A. (OTGLY) (OTGLF) because, although the company delivered a strong Q3 performance that was driven by a late-cycle monetization of Cyberpunk 2077, which confirmed the durability of the company's catalog and its ability to self-finance its current development of games, the quarter did not improve visibility into the company's next growth cycle, with no major releases to be expected before 2027 and no guidance provided for 2026. The company's profitability benefitted from lower amortization and accounting effects, and development spending and developer count continued to increase, pressuring the company's near-term earnings. The stock is also trading at a premium forward EV to EBITDA multiple despite an expected decline in EBITDA of about 15% over the next fiscal year, thereby making the company's current valuation, and not necessarily its operating performance, the primary constraint on its upside…
