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Here’s Why You Should Consider Picking Up Cineplex Inc. (TSX:CGX) Today

Cineplex Inc. (TSX:CGX) stock has dropped 22.2% in 2018 as of close on June 5. After the release of its first-quarter earnings, Cineplex CEO Ellis Jacob characterized the sell-off that followed as “short-sighted.” He described the struggles at Cineplex as a “blip,” and was confident that Cineplex would bounce back in the second quarter.

In late 2017, I’d discussed the numerous challenges faced by the cinema industry. Cineplex and other theatre companies have attempted to mitigate falling attendance and the rise of home entertainment services by branching out into other areas and delving into different offerings. These strategies have met with mixed success thus far, although The Rec Room has brought in impressive revenues for Cineplex.

Cineplex stock is not trading far off of its 52-week low of $27.56 as of close on June 5. Will the frustration continue? I would contend that it isn’t time for investors to throw in the towel just yet. In the first quarter, Cineplex predictably saw an increase in box office and concession revenues per patron of 2.4% and 6.4%, respectively. Attendance was down 9.3% year-over-year, but rising prices have allowed Cineplex and other theatres to keep revenues relatively flat.

As we look ahead to the summer, there have been a number of bright spots for cinemas in 2018. One stands out above all else.

Attendance has climbed year-to-date in 2018

According to box office mojo, North American attendance is up 3.5% from the same time in 2017. This rise has been fueled by huge hits from Walt Disney Co. (NYSE:DIS). Black Panther has pulled in over $1.3 billion worldwide while Avengers: Infinity War has raked in over $1.9 billion. The results are very promising ahead of a usually busy summer season. However, 2017 was a big disappointment in this regard.

What is noteworthy in these numbers is also how top heavy the attendance numbers are. I’ve mentioned that the overreliance on blockbusters, and increasingly properties from the Disney studio, is a dangerous long-term business model. Solo: A Star Wars Story also represents the first financial failure in Disney’s Star Wars catalogue, and as of this writing, it will likely be challenging for it to break the $500 million mark. Every other installment has surpassed the $1 billion mark so far.

These are long-term considerations, and genre fatigue has not set in for many of the most bankable properties. This is reason enough to be optimistic for the remainder of 2018. Deadpool 2 has started well out of the gate and Jurassic World: Fallen Kingdom and Incredibles 2 will debut in the coming weeks.

Cineplex is well positioned to see some of the momentum in box office numbers translate to its bottom line in coming quarters. The company also offers an attractive annual dividend of $1.74 per share, representing a 5.7% dividend yield.

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Fool contributor Ambrose O'Callaghan has no position in any of the stocks mentioned. David Gardner owns shares of Walt Disney. The Motley Fool owns shares of Walt Disney. Walt Disney is a recommendation of Stock Advisor Canada.

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