Cineplex Stock: High Risk, High Reward

Is Cineplex (TSX:CGX) the pandemic reopening play it’s cracked up to be?

| More on:
movies, theatre, popcorn

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

Cineplex (TSX:CGX) stock has surged more than 200% since plummeting below the $5 mark to its October low. Indeed, this company is viewed as a key reopening play, and investors are jumping aboard right now.

That makes sense. We’re all itching to go out and see a movie or do anything outside the house. Accordingly, the anticipation around cinema stocks right now is understandable.

However, over the past month, Cineplex stock has pulled back somewhat. Let’s consider a couple factors that may be at play for this complex recovery play right now.

Concerns around a third wave bearish

The prospects of a hard-hitting third wave are looking more and more likely right now. We’re in the midst of yet another leg up in terms of daily case volumes and hospitalizations. Accordingly, the reopening thesis seems to have taken a step back of late.

Given the amount of leverage Cineplex stock provides to an economic reopening, such news is important to follow. Sentiment plays a big role in the company’s stock price levels as well, and how retail investors view these economic data matters.

Indeed, Cineplex’s balance sheet leave a lot to be desired right now. The company’s revenue has slowed to a trickle, and there’s really no fundamental analysis that can be done on this stock right now. Accordingly, it’s a “leap of faith” of sorts for investors who are very bullish about the near-term reopening prospects here in Canada.

Accordingly, a slower vaccination rollout appears to be bearish for this Canadian cinema chain. How soon Canadians get vaccinated and how open the government is to lifting restrictions are two key factors at play with this stock that can’t be ignored by investors.

When should investors take a position in Cineplex stock?

Right now, it appears Cineplex is on decent footing. The company’s management team has said it has enough liquidity to last awhile. However, if the company needs to tap outside debt or equity markets again, should the pandemic pick up steam and the reopening take longer than expected, all bets are off in this regard.

In this sense, I think it’s risky to take a position in Cineplex right now. Yes, it’s an attractive reopening thesis, if everything plays out perfectly. However, I think a lot of optimism is baked into the company’s current share price right now.

There’s certainly hope that vaccine rollouts should accelerate, and there’s some potential for a full-fledged reopening early next year. However, for cautious investors, waiting patiently on the sidelines may be a better move right now.

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 Chris MacDonald has no position in any of the stocks mentioned. The Motley Fool recommends CINEPLEX INC.

More on Investing

A solar cell panel generates power in a country mountain landscape.
Top TSX Stocks

3 TSX Stocks You Can Hold for the Next 3 Decades

While the market faces significant headwinds, it's crucial to ensure that you can commit to the TSX stocks you're holding…

Read more »

energy oil gas
Dividend Stocks

2 High-Yield Energy Stocks to Buy as Recession Approaches

Energy stocks such as TC Energy and Canadian Natural Resources allow investors to generate income even in recessionary times.

Read more »

green power renewable energy
Dividend Stocks

3 Top Dividend Stocks to Drive Your Passive Income

These three high-yielding, safe dividend stocks could boost your passive income.

Read more »

Dial moving from 4G to 5G
Tech Stocks

TFSA Investors: 2 Canadian Stocks With Unbelievable Staying Power 

Amid economic uncertainty, investors look for stocks that can thrive in any crisis and grow long term. Here are two…

Read more »

protect, safe, trust
Dividend Stocks

TFSA Wealth: How to Earn $363 in Monthly Passive Income for Life

Canadian investors can harness the power of the TFSA to generate steady tax-free passive income for decades.

Read more »

Canadian Dollars
Dividend Stocks

TFSA Millionaire: How to Turn $40,000 Into $1.2 Million for Retirement

Here's how TFSA investors are using the power of compounding to buy top Canadian dividend stocks to build retirement wealth.

Read more »

potted green plant grows up in arrow shape
Stocks for Beginners

3 Superb Income and Growth Stocks for Every Portfolio

The market is full of superb income and growth stocks, but not all belong in your portfolio. Here are three…

Read more »

stock market
Stocks for Beginners

Worried About Stagflation? 2 Canadian Stocks for All Market Cycles 

Stagflation delays economic recovery. You can keep your portfolio stagflation ready with these Canadian stocks that are suitable for all…

Read more »