(Bloomberg) -- Optimism around CD Projekt SA’s next generation of blockbuster game The Witcher has sent the shares soaring, though given the risks involved analysts are skeptical the gains will last.
The Polish game maker has rallied more than 60% this year so far, making it the best performer in Warsaw’s WIG20 Index. However, analysts expect its shares to fall 30% over the next 12 months, the biggest potential downside for any stock in the Stoxx Europe 600 Index, according to data compiled by Bloomberg.
One of the key challenges facing the company is to make a leap from developing a single title to producing multiple games, according to Edward James, a Cantor Fitzgerald analyst. CD Projekt plans to work on three releases of The Witcher game as well as on the new launch of Cyberpunk over the next years.
“Whilst ambitious and, as a gamer myself, it’s cool to see, logically it seems very, very challenging,” James, who has the Street-low price target on the stock, said on the phone.
New game releases gone wrong can be very costly. This is something that CD Projekt experienced first-hand during the Covid-19 pandemic, following the disastrous release of the hotly-anticipated title Cyberpunk 2077.
The gaming company’s shares still trade far below the lofty peaks of August 2020, having fallen 60% since, yet brokers could see no clear trigger for the recent rebound.
A lot of analysts tracking the stock failed to predict the extent of the rally this year, with 12 rating CD Projekt a sell and only three sticking to buy as of Jan. 1. The stock’s good run was supported further in July, after Poland’s biggest pension fund NN raised its stake in the computer-game maker above 5%.
Some suggest the studio may reveal details about its Polaris project, the next installment of its most successful franchise,The Witcher, that earned CD Projekt global recognition in 2015. The company is throwing the bulk of its manpower behind the new medieval role-playing game, which is currently in the pre-production stage.
Yet very little is known about the new project at this stage and analysts will have to wait for first trailers to gauge the game’s potential, Michal Wojciechowski, an analyst at brokerage Ipopema Securities SA, said on the phone. “For many investors The Witcher is seen as a less-risky franchise that could boost sales as early as 2026,” he added.
CD Projekt declined to comment on the increase in share price and says that the new version of The Witcher game, codenamed Polaris, will enter the production stage in the second half of 2024.
The next test for the Polish firm will be its first-half results on Aug. 28. Analysts will scan them for evidence of the sustained sales bump, following the launch of the paid add-on Phantom Liberty, and any updates on the new games pipeline.
But even if the new installment of The Witcher proves to be a catalyst in the future, it could be a bumpy ride for the stock in the meantime.
“This is an unbelievable task that they’re taking on,” Cantor Fitzgerald’s James said. “There’s a lot of room for error, and there’s significant room for volatility in estimates.”
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