It’s that time again! Once a week I pull breakout alerts from our premium Breakout Alerts service. Members of the service receive 6-8 potential breakout opportunities each week.
This week we’ve got a play on the video game industry. We documented the rise of E-Sports in last month’s Consilience Report and outlined the bull case for this company.
That company is CD Projekt Red (CDR). CDR’s a polish video game producer. They’re the team that produced the mega-successful Witcher series (yes, that Witcher).
Here’s the bull thesis: CDR’s coming off a historical year for sales and profitability. The company will use this momentum to further bolster its line-up of gaming IP while investing in its most popular series’ like The Witcher (over 50M copies sold). The company’s net cash balance sheet is strong enough to withstand the boom-bust cycle of new game releases. CDR boasts extreme operating leverage, which we believe will continue over the next five years. Short-term catalyst includes release of CyberPunk 2077.
Breakout Formation: Rectangle Chart Pattern Above 50MA
- 3% Entry: $429.92
- 1.50% Entry: $423.66
- Stop-Loss: $390.3
- Profit Target: $481.80
- Reward/Risk: 1.74x
CD Projekt S.A., through its subsidiaries, engages in the development and digital distribution of video games worldwide. It operates through two segments, CD PROJEKT RED and GOG.com.
The company’s product portfolio comprises The Witcher; The Witcher 2: Assassins of Kings; The Witcher 3: Wild Hunt, Hearts of Stone games, and Blood and Wine; Thronebreaker: The Witcher Tales; Gwent: The Witcher Card game; and Cyberpunk 2077, as well as online multiplayer games. – TIKR.com
- Market Cap: $10.1B
- Enterprise Value: $9.93B
- Gross Margins: 70%
- Operating Margins: 37.5%
- EV/EBIT: 17.05x
- P/FCF: 20x
What We Like:
- Leading video game creator with crazy-sticky fanbase
- Consistent high-quality games
- Negative cash conversion cycle
- No debt
- Insiders own >20%
- High FCF generation
What We Don’t Like:
- Boom/bust video game cycle
Student of value investing for over 13 years spending his time in small to micro-cap companies, spin-offs, SPACs and deep value liquidation situations.