Shares of the creator of The Witcher game up 40% in 2025. Is it worth chasing the rally?

Investors' bet on the future success of the fourth installment of the "Witcher" franchise has lifted the shares of Polish game development studio CD Projekt to the level of the leaders of the European Stoxx 600 index. Its securities are trading at a record price-to-earnings ratio, overtaking even AI and defense. Bloomberg, however, recalls how the market got burned by overly high expectations for Cyberpunk 2077 five years ago.

Optimism about the release of the fourth installment of the medieval fantasy game franchise "The Witcher IV" in at least two years has already put Poland's CD Projekt at the top of the market valuation among European stocks, writes Bloomberg. 

According to the multiplier, which reflects the value of securities to the expected next year's revenue, this company turned out to be the most expensive in the benchmark European index Stoxx 600 and overtook even such "hot" sectors as defense and electrification. CD Projekt's securities are trading at a level that is 29 times its expected revenue - in comparison, the UBS index tracking European AI leaders (AI Winners Index) has this figure at just under 5, Bloomberg points out.

Since the beginning of the year, the capitalization of CD Projekt on the Polish stock exchange has grown by almost 40%. On July 11, the company's quotations were down by about 1%.

"Creating emotions and managing gamer engagement play a key role" in this business, explained the developer's CEO Michal Nowakowski, commenting to the agency on this stock performance. 

"The Witcher IV" isn't due out until 2027 at the earliest, and analysts estimate it could result in more than tripling CD Projekt's sales in the year of release, Bloomberg writes.

Market participants praised the June fragment new game and the technology being developed for it.  "This quality justifies the higher sales forecasts, which explains the stock's overvaluation," said Emil Yanchev, portfolio manager at Karoll Capital Management Ead in Sofia. He said his company has been holding CD Projekt securities since 2016 and they are among the best assets in its portfolio, having appreciated more than eight times in that time.  

"Investing in game developers means betting on future releases, and given the popularity of the "Witcher" franchise, it looks like the price rise on the wave of excitement may not be over yet," mBank SA analyst Piotr Poniatowski told the agency. He emphasized that CD Projekt remains the highest quality stock in the bank's core portfolio. However, this week, the analyst downgraded its rating downgraded its rating by two steps at once - from "buy" to "sell", bypassing the neutral assessment, referring to the sharp rise in the price of the company's securities and the strengthening of the zloty against the dollar.

Analysts in general treat CD Projekt much more cautiously than investors, Bloomberg points out. The average target price of the studio's securities is almost 32% below the closing level on July 10. Of the 16 analysts tracking the company's dynamics, nine advise selling its shares (Underweight and Sell ratings), four are neutral (Hold) and only three advise buying (Buy).

In addition, CD Projekt's score is significantly higher than other major game developers, including Ubisoft Entertainment, known for the Assassin's Creed series, and Take-Two Interactive Software, creator of Grand Theft Auto.

The rave reviews of trailer a new game released six months ago suggest the rally may be justified, the agency writes, but reminds that CD Projekt investors have gotten burned before. The company's stock tripled amid the hype surrounding the release of Cyberpunk 2077 in 2020, but crashed after the release itself as bugs and technical issues spoiled the launch, Bloomberg writes.

The success of "The Witcher IV" is of key importance for CD Projekt: the previous installment remains the studio's best-selling game. Since 2015, 60 million copies have been sold, largely helped by the Netflix adaptation, the agency notes.

The fourth installment of the franchise will be markedly different from the last one: the female character Ciri will have the lead role for the first time, instead of Geralt. 

This article was AI-translated and verified by a human editor