Cineplex Inc. (TSX:CGX), the largest owner and operator of movie theatres in Canada, has widely outperformed the overall market in 2015, rising over 9% as the TSX Composite Index has returned just over 2.5%, and I think it could continue to do so over the next several years. Let’s take a look at three of the primary reasons why this could happen and why you should establish a position today.
1. Triple-digit earnings growth to support a near-term rally
Cineplex released very strong first-quarter earnings results before the market opened on May 8, and its stock has responded by rising over 3.5% in the weeks since. Here’s a breakdown of 10 of the most notable statistics from the report compared with the year-ago period:
- Net income increased 107.6% to $10.5 million
- Diluted earnings per share increased 112.5% to $0.17
- Revenue increased 3.5% to $289.79 million
- Box office revenues decreased 0.1% to $156.04 million
- Food service revenues increased 4.2% to $90.79 million
- Attendance increased 1.5% to 17.54 million
- Box office revenues per patron decreased 1.5% to $8.90
- Concession revenues per patron increased 2.6% to $5.18
- Adjusted earnings before interest, depreciation, and amortization increased 30.3% to $40.2 million
- Adjusted free cash flow increased 49.5% to $27.5 million
2. The stock trades at inexpensive forward valuations
At today’s levels Cineplex’s stock trades at just 27.9 times fiscal 2015’s estimated earnings per share of $1.76 and only 22.7 times fiscal 2016’s estimated earnings per share of $2.16, both of which are inexpensive compared with its long-term growth potential.
I think Cineplex’s stock could consistently command a fair multiple of at least 30, which would place its shares upwards of $52.75 by the conclusion of fiscal 2015 and upwards of $64.75 by the conclusion of fiscal 2016, representing upside of more than 7% and 32%, respectively, from current levels.
3. A high dividend yield and five consecutive years of increases
Cineplex pays a monthly dividend of $0.13 per share, or $1.56 per share annually, giving its stock a 3.2% yield at today’s levels. The company has also increased its annual dividend payment for five consecutive years, making it one of the top dividend-growth plays in the industry, and its consistent free cash flow generation could allow this streak to continue for another five years at least.
Should you invest in Cineplex today?
I think Cineplex could outperform the overall market in both the short and long term. It has the support of triple-digit first-quarter earnings growth, its stock trades at favourable forward valuations, and it has a 3.2% dividend yield with a track record of increasing its annual payment. Foolish investors should take a closer look and strongly consider establishing positions today.
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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.