In the late winter, I’d suggested that investors should stay away from Cineplex (TSX:CGX) and the movie theatre industry at large. At the time, it was not apparent that Canada’s most populous province was headed for its third lockdown over the past year. By the end of March, it was clear that the door was about to be slammed shut on the province-wide reopening. This was bad news for the traditional cinema.
Today, I want to look at three reasons why Cineplex could be a bold buy for Canadian investors in late April. Let’s dive in.
Canada is making slow but steady progress with its vaccine rollout
Canada’s vaccine rollout has been mired by delays and disappointments. However, deliveries have picked up in the spring. There are positive signs that the country will be able to pursue an aggressive inoculation campaign by the time we move into the summer. We can hope for a return to normalcy in our leisurely lives by the end of 2021.
Cineplex needs to return to at least partial operations to avoid further financial calamity by the end of this year. Canada’s improved vaccine rollout should encourage investors. There is reason for cautious optimism for those looking at snatching up Cineplex stock right now.
Cineplex has managed to stave off financial catastrophe
Canada’s top movie theatre operator has been essentially non-operational for a full year. This has forced leadership to be extremely creative in staving off financial collapse. Cineplex has experienced a net cash burn of roughly $15 million to $20 million per month since March 15, 2020. In the fourth quarter, it noted a net cash burn of $74.3 million.
In early February, the company announced that it had entered a third amendment to the seventh amended and restated credit agreement with its lenders. AMC Entertainment, the largest cinema operator in the United States, has been forced to pursue similar rearrangements with its lenders.
Cineplex has managed to stay afloat on the financial side, despite wrestling with these crippling conditions. In late 2020, it moved forward with the sale of its Toronto head office to pay down debt. The sale netted the company $57 million. It plans to continue to lease its base of operations over the next decade.
Citizens are starving for distractions, and they have money in their pockets
Investors can expect to see the company’s first-quarter 2021 results on May 6. Canadians can expect more of the same as its doors remain shuttered. Last week, I’d discussed whether the stock could regain momentum. Consumers have flocked to home entertainment options even before the pandemic. However, there is one positive sign for the traditional cinema going forward.
Canadians have saved more, as leisure activities have been torpedoed over the course of the pandemic. This means that millions of citizens are almost certainly starving to get out of the house as soon as they are able. A flurry of box office draws like the new installment in the James Bond franchise could lure consumers back to the cinema.
On the subject of Cineplex stock...
Before you consider Cineplex, you may want to hear this.
Motley Fool Canadian Chief Investment Advisor, Iain Butler, and his Stock Advisor Canada team just revealed what they believe are the 10 best stocks for investors to buy right now... and Cineplex wasn't one of them.
The online investing service they've run since 2013, Motley Fool Stock Advisor Canada, has beaten the stock market by over 3X. And right now, they think there are 10 stocks that are better buys.
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 Ambrose O'Callaghan has no position in any of the stocks mentioned. The Motley Fool recommends CINEPLEX INC.