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I own a small position in Paradox Interactive. When I reviewed my holdings, one figure stood out: the price-to-earnings ratio was about 132. That sounds like a share for which the market expects almost miraculous growth. But the number needs explaining.

P/E compares the share price with earnings per share over the previous twelve months. At the SEK 157.40 price shown in my portfolio and earnings of roughly SEK 1.20 per share, Paradox comes out near 130. The low earnings partly reflect a SEK 355 million write-down of Vampire: The Masquerade – Bloodlines 2 in the fourth quarter of 2025. The game failed to meet the company’s commercial expectations.

That does not mean I can simply disregard the write-down and call the share cheap. Developing games carries a real risk of failure. New titles can be expensive to make and still sell less than expected.

A business with a long life

There is nevertheless something appealing about Paradox’s business. Games such as Crusader Kings and Stellaris can remain relevant for years and keep selling new content after release. In the second quarter of 2026, revenue rose 14% and operating profit 37%. Across the whole first half, however, operating profit increased by only 1%. One strong quarter is too little to support sweeping conclusions.

One way to understand the valuation is to test different levels of profit. If Paradox earned SEK 4 per share in a year, the P/E at the same price would be about 39. At SEK 5 it would be about 31. These are illustrations, not forecasts, but they show how much the ratio changes when profit normalises.

My conclusion is that a P/E around 130 gives a distorted picture of Paradox right now. Even so, the investment depends on confidence that existing games will continue to sell and future launches will succeed. I will follow earnings over several quarters, sales of additional content and cash flow rather than allow one P/E figure to settle my view of the company.

Sources: Paradox Interactive’s 2025 year-end report and interim report for January–June 2026. The share price comes from my portfolio screenshot in September 2026.