3 Strong Reasons Why Cineplex Stock Is a Top Contrarian Buy

Cineplex (TSX:CGX) is a stock on the ropes. But what if this big name in movie exhibition bounced back in 2021? Let’s find out.

| More on:
tech and analysis

Image source: Getty Images

The number one movie exhibition stock dropped 10% at the start of the week. But the stock quickly bounced back, and – at the time of writing – soon reclaimed those losses, and then some. Sitting on an average five-day 3.5% gain midweek, Cineplex (TSX:CGX) is exhibiting some stubborn charisma. Indeed, this is a quality stock that could crush expectations in a post-pandemic Canada. Here are three sound reasons why.

A bargain stock at today’s prices

One good thing about this stock being historically cheap… is that it’s historically cheap. Of course, that is bad news for the shareholder focused on the near-term, especially those with strict exit points. But it’s good news for newcomers and contrarian investors looking for speculative plays for mid- to long-term upside. In the meantime, current shareholders should remember why they bought a stake in the first place, and consider carrying on holding.

Wide-moat market share dominance

Cineplex is a stock on the ropes. This week has underlined its vulnerability to even deeper downside. But what if this big name in movie exhibition bounced back in 2021? Cineplex is in a better position than any other business to dominate the Canadian movie exhibition space upon a post-pandemic recovery. Investors still on the fence about this name should bear in mind that Cineplex is still the market leader, and a major force in North American entertainment.

Recovery upside potential

There can be few names as thoroughly chewed up as Cineplex. Down 78% in the last 12 months, Cineplex has bled a truly alarming amount of capital. The last three months alone have seen Cineplex’s share price lose 35%. But the contrarian might look at this cheap stock and see nothing but recovery potential. A speculative play, to be sure, but one that has some (albeit optimistic) logic behind it.

At the time of last year’s proposed Cineworld takeover, I wrote, “At the end of the day, entertainment is a customer experience, an end point that combines technology with storytelling. While content streaming is likely to continue to be a growth industry, the social importance of cinema-going cannot be underestimated, as record box office takings have shown this year.”

Imagine the upside potential if a recovery sees the return of that kind of revenue. Assuming, that is, that Cineplex doesn’t go completely bust in the meantime. But there are two reasons why it probably won’t: First of all, no economy can comfortably afford another summer like the one that just passed. This means that the worst may very well be behind us – in terms of shutdowns, if not actual transmission figures.

Cineplex avoided going bust during the worst of the pandemic. So there’s that. The other reason why this stock probably won’t go to zero is that the movie industry might conceivably get bailed out if the current situation worsens or goes on much longer. Nobody’s seen a movie exhibitor bailout, it’s true. But times are strange. It could happen – after all, movie exhibition is a billion-dollar industry.

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 Victoria Hetherington has no position in any of the stocks mentioned.

More on Investing

A person builds a rock tower on a beach.
Dividend Stocks

CPP Pension: Boost Your Payouts by $5,232 per Year

You can raise your after-tax CPP by making RRSP contributions. Alimentation Couche-Tard (TSX:ATD) is a good RRSP stock.

Read more »

Overhead shot of young adults using technology at a table
Tech Stocks

1 Stock That’s Just as Hot as Tesla Stock  (Without All the Hype)

Sure, Tesla stock (NASDAQ:TSLA) has the headlines, but this other stock has far more growth, with even more on the…

Read more »

A close up image of Canadian $20 Dollar bills
Dividend Stocks

3 No-Brainer Stocks to Buy With $20 Right Now

Here are three no-brainer stocks that are suitable for anyone getting started on their investing journey.

Read more »

Bank Stocks

Could Royal Bank Stock Reach $200?

Growing rate cut hopes and improving analysts’ expectations from Royal Bank’s financial results could help its stock maintain strong upward…

Read more »

A plant grows from coins.

3 Growth Stocks to Buy With $3,000 for the Next 3 Years

These growth stocks have the potential to deliver above-average returns and compound investors’ wealth.

Read more »

Young woman sat at laptop by a window

Here’s Why I Think Restaurant Brands Is 1 of the Best Bets on the TSX Today 

Here's why Restaurant Brands (TSX:QSR) could be one of the best stocks to buy for long-term upside in this current…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

This 5% Dividend Stock Pays Cash Every Month

This monthly dividend stock offers cash every month, but also returns that continue to climb higher from being in a…

Read more »

growing plant shoots on stacked coins
Dividend Stocks

3 Top Dividend Stocks That Keep Raising Their Payouts

These three TSX stocks are ideal buy as they consistently raise their payouts, depicting their healthy financials.

Read more »