It was a huge news weekend for everyone around the world. A new president will take office in January next year, and a new COVID-19 vaccine may soon be available. The news sent the markets into a frenzy, with the promise of normalcy potentially now seriously on the table.
While there are still many steps left to take before a vaccine is available, it has investors excited. While there are a few areas that are likely to see a boost in revenue sooner from a vaccine, there are those looking down the line. That includes looking at stocks like Cineplex Inc. (TSX:CGX).
First, some history
I won’t go too far back, but let’s look at pre-crash Cineplex. The company was doing well, with revenue coming in steadily as patrons continued to go to the entertainment business for movies, food, and more thanks to its Rec Rooms. While revenue wasn’t increasing by leaps and bounds, it was still increasing.
What investors worried about then was the rise in streaming services. What would it take for people to continue going to the movies? Could Cineplex create its own streaming service, or even a movie house as e-commerce businesses have started to do?
But then, the crash. Revenue plummeted and continues to drop quarter after quarter. Debt is still at around $1.5 billion, and year-over-year revenue has decreased by 37.4% as of the latest earnings report. Meanwhile, shares fell from peak to trough by 86%.
Then, the jump
With the news of a vaccine, shares in Cineplex jumped 32% in one day! Shares have remained stable as hopes of a new vaccine could mean Cineplex comes out with some good news. If the company is even able to open its doors to some patrons, that at least something — and something is a whole lot better than nothing.
In a year’s time, it wouldn’t be crazy to think that Cineplex stock could be at pre-crash levels once again. Any good news and life from this company could mean investors will see share prices rise even higher. Though there are a few steps the company could take in the meantime.
Cineplex management already did the investing, so spending money right now is definitely not an option. That could be further down the line. Instead, it might be time to think of closures and slow opens. I’d imagine management has started to look at which theatres are underperforming even before the pandemic and think about closing them. Selling real estate is the easiest way back to profits. Meanwhile, the company could also look to slow opens, opening a few large theatres that would bring in the most cash quickest.
Foolish takeaway
If management can do this in the next few months, or at least before movie season next summer, it might be saved. In fact, this era might just be a blip in the company’s history. Also, investors who buy up now could soon see dividends come back once the company can bring in any solid cash.
So you’ll be getting one of the best dividends around, for a fraction of the cost. And for naysayers, yes. While the stock is volatile, it’s unlikely to disappear. People will eventually go back to the movies, given enough time. So as always, be patient Fools.
