CD Projekt Vs. Square Enix: One Valued For Diversification And Catalysts, The Other Priced For 2027

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Excerpt

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/4838979-cd-projekt-vs-square-enix-one-valued-for-diversification-and-catalysts-the-other-priced-for-2027

Summary

• Square Enix trades at 16× EV/EBITDA versus CD Projekt’s 54×, offering stronger value and 18% upside potential.

• Square Enix’s diversified revenue mix and 52% reinvestment rate support consistent compounding.

• CD Projekt’s 108% reinvestment rate reflects heavy spending ahead of The Witcher 4’s 2027 launch.

• The market is pricing CD Projekt as if The Witcher 4 is already a $10B hit.

• Square Enix’s robust pipeline and high sales-to-capital ratio make it the preferred near-term opportunity.

Investment Thesis

Between CD Projekt S.A. (OTCPK:OTGLY) (OTCPK:OTGLF) and Square Enix Holdings Co., Ltd. (OTCPK:SQNNY) (OTCPK:SQNXF), Square Enix makes for a better investment opportunity. It has a much more diversified mix of revenue, a solid reinvestment rate of 52%, and a 3.21× sales-to-capital ratio that come together to give the company a buy rating, especially given its 18% upside potential based on an EV/EBITDA re-rating toward the level of that of its peers. Meanwhile, CD Projekt remains a sell at its present valuations because it trades at 53.9× EV/EBITDA and is priced as if The Witcher 4 were already a success. While the company does have a strong balance sheet and an enduring IP, its next major catalyst for earnings won't materialize until 2027—the earliest possible year for The Witcher 4's release. Thus, Square Enix is my preferred pick since it offers near-term catalysts and longer-term potential for compounding while also trading at a premium far less than that of CD Projekt's…