Should You Buy, Sell, or Hold Cineplex Inc. Following its Q4 Earnings Beat?

Cineplex Inc. (TSX:CGX) announced fourth-quarter earnings on the morning of February 12 and its stock has risen nearly 7% in the days since. Should you buy into the rally?

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Cineplex Inc. (TSX:CGX), the largest owner and operator of movie theatres in Canada, released fourth-quarter earnings before the market opened on February 12, and the results exceeded the expectations of analysts on both the top and bottom lines. The company’s stock has reacted by rising over 6.5% in the trading sessions since, so let’s take a closer look at the quarterly results to determine if we should consider buying into this rally, or if we should wait for it to subside.

The better-than-expected results

Here’s a summary of Cineplex’s fourth-quarter earnings compared to what analysts had anticipated and its results in the year-ago period.

Metric Reported Expected Year Ago
Earnings Per Share $0.51 $0.39 $0.32
Revenue $332.2 million $331.6 million $323.2 million

Source: Financial Times

Cineplex’s earnings per share increased 59.4% and its revenue increased 2.8% compared to the fourth quarter of fiscal 2013. The company’s immense earnings per share growth was driven by net income increasing 59.1% to $32.1 million, while its slight increase in revenue can be attributed to total attendance increasing 0.9% to 19.04 million guests and total media revenues increasing 19.5% to $46.85 million.

Here’s a quick breakdown of 12 other important statistics and updates from the report compared to the year-ago period:

  1. Box office revenues decreased 2.9% to $172.46 million.
  2. Box office revenues per patron (BPP) decreased 3.8% to $9.06.
  3. Food service revenues increased 4.8% to $97.78 million.
  4. Concession revenues per patron (CPP) increased 4% to $5.14.
  5. Cineplex Media revenues increased 9.6% to $29.32 million.
  6. Cineplex Digital Media revenues increased 40.8% to $17.53 million.
  7. Gaming revenues increased 8.4% to $1.87 million.
  8. “Other” revenues increased 17.3% to $13.25 million.
  9. Adjusted free cash flow increased 17.3% to $42.5 million.
  10. Adjusted free cash flow per common share increased 17.1% to $0.6753.
  11. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) increased 15.7% to $62.6 million.
  12. Adjusted EBITDA margin expanded 210 basis points to 18.9%.

Should you buy shares of Cineplex today?

Cineplex is Canada’s largest owner and operator of movie theatres, and increased attendance and food service revenues led it to a very strong fourth-quarter performance. The company achieved double-digit year-over-year growth in net income, earnings per share, free cash flow, and EBITDA, while expanding its margins and surpassing analysts’ expectations, and its stock has responded by accordingly by rising over 6.5% in the days since.

Even after the large post-earnings rally, I think Cineplex’s stock represents an intriguing long-term investment opportunity, because it still trades at inexpensive forward valuations, including just 26.9 times fiscal 2015’s estimated earnings per share of $1.82 and only 22.7 times fiscal 2016’s estimated earnings per share of $2.16.

Furthermore, the company pays a monthly dividend of $0.125 per share, or $1.50 annually, which gives its stock a very generous 3.1% yield at current levels. I think this makes it both a value and dividend play today.

With all of the information above in mind, I think Cineplex represents one of the best long-term investment opportunities in the market, so Foolish investors should take a closer look and strongly consider establishing positions today.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joseph Solitro has no position in any stocks mentioned.

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