CD Project below. It was so cheap the last 4.5 years ago

Although CD Projekt’s share price rose some 3% on Tuesday, the shareholders of the largest WSE-listed game maker are among the worst losing investors in recent months. Since the start of the year, the company’s stock price is down 53 percent and the size of the sell-off recorded since last year’s peak and a half is now approaching 80 percent. At the end of Tuesday’s session, CD Projekt’s share was paid just over PLN 91 after the price hit its 4.5-year low before noon.

What does the producer of “Cyberpunk 2077” beat?

Krzysztof Tkocz, an analyst at brokerage BM BDM, admits more disappointing information has been released from the company recently. CD Projekt, whose sales began with the negative reception of the December 2020 debut of “Cyberpunk 2077”, announced on the occasion of the annual results that the sales of this game were weaker than expected. and probably the last expansion pack for this production will not take place until 2023 – Tkocz lists.

Moreover, according to him, the increase in the cost of capital has a very large impact on the valuation of CD Projekt. Government bond yields, considered a reflection of the risk-free rate, are rising globally, but in Poland the rises were particularly sharp. Valuations in the gaming industry, where cash flow has slowed more than in more traditional industries, are particularly sensitive to changes in risk-free rates.

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– According to our model, the increase in the profitability of Polish 10-year bonds of 3 percent. in November to 7.5 percent. currently, this translates into cutting game makers’ valuations by half – explains analyst BM BDM.

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The technology industry is overrated

The sale of CD Projekt shares is progressing with the deepening of the downturn in the stock market of growth companies, ie those characterized by the highest development dynamics. The technology sector, which has been a leader in global equity market gains for a decade, is now at the epicenter of an explosive downturn.

Another wave of sell-offs was sparked by Friday’s US inflation data, which was the highest in 40 years in May. On the one hand, they led investors to expect an even greater scale of monetary tightening by the Fed, and on the other, they sparked fears of a recession, translating into the threat of downward revisions to corporate earnings forecasts.

Expectations of further strong growth in the cost of money lower the present value of future profits for companies and force investors to limit their risks. As a result of the increase in yields on US 10-year bonds by more than 1.8 percentage points since the beginning of the year. accompanied the collapse of the Nasdaq 100 technology index by more than 30 percent. By comparison, the broad market index S&P 500 of the New York Stock Exchange fell significantly less, namely by 21 percent.

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Recommendations for the largest studio

Among the recent recommendations for CD Projekt, a leading Polish gaming company, the negative ones predominate. The sale of shares is recommended by DM Trigon and DM BOŚ, and their purchase is only recommended by mBank.

In the May 16 report, Tomasz Rodak of DM BOŚ estimated one CD Projekt share over a 12-month horizon at PLN 90, meaning from the current perspective the downside potential was realized in just a month.

According to the analyst, the company was listed in May with a price-earnings ratio of no less than 90%. a premium on the valuation of comparable companies. The compatriot, like BM BDM’s Tkocz, was forced to lower the “Cyberpunk 2077” sales forecast for the years 2022-2023. Currently, they forecast sales of only 4.0-3.6 million game units, which represents a 30 percent reduction.

“Most positive stimuli are delayed or canceled,” Rodak warned in the report.

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