Could Cineplex (TSX:CGX) Soar like AMC?

Lately, AMC Entertainment Holdings (NYSE:AMC) has been making huge gains. Could Cineplex (TSX:CGX) be next?

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AMC Entertainment (NYSE:AMC) stock has been one of the best-performing assets of 2021. Up 2,785% for the year, it has truly soared. AMC has a legion of loyal investors willing to pump it on Reddit and Twitter, which has led to it defying Wall Street’s expectations. In fact, AMC investors have caused Wall Street to experience some actual losses. According to a Reuters article, shorts lost $512 million in a single trading day this month.

It’s been a wild ride — no question about it. And it leads naturally to the question, “Could another movie theatre stock be next?”

Certainly, most movie theatre chains are in about the same boat that AMC is in. That is to say, they’re currently suffering depressed revenue but are certain to recover when the pandemic is over. Just recently, the film F9 had a record-setting opening weekend, signaling the return to normal life for movie theatre companies. If that benefits AMC then it probably benefits companies like Cineplex (TSX:CGX) as well. In this article, I’ll explore whether Cineplex has the potential to rally like AMC did, or whether it will deliver much more tepid returns.

How Cineplex is similar to AMC

Cineplex shares many similarities with AMC:

  • It’s a movie theatre chain.
  • Its revenue abruptly collapsed in 2020.
  • It is expected to see revenue surge in 2021 with the post-pandemic recovery.

In 2020, AMC saw its revenue decline from $5.4 billion to $1.2 billion. In Cineplex’s case, it was from $700 million to $132 million. The decline was similar in percentage terms (77.7% for AMC; 81% for Cineplex), yet one company’s stock has rallied out of control this year, while the other has risen much less. In the next section, I’ll explore why that’s the case, and why, ultimately, Cineplex probably will not become a meme stock like AMC.

How it’s different

Despite all the similarities it shares with AMC, Cineplex is very different in other ways. Here are the most important ones:

  • Cineplex is not a “meme stock” getting massive amounts of coverage on Reddit.
  • Cineplex is based in Canada, which has generally had stricter and longer-lasting lockdown policies than the United States.
  • Cineplex has not received massive cash inflows from equity sales like AMC has, and may therefore have a harder time staying solvent.

Given these differences, it appears unlikely that Cineplex will become the next AMC. It is very similar as a business, but it has not received the kind of social media hype that — let’s be honest — is responsible for most of AMC’s gains this year.

There is one interesting thing to note, though.

Cineplex does appear to be a decent candidate for a short squeeze. About 25% of its trading volume is short according to shortdata.ca, which would result in a pretty big spike when shorts are forced to cover. That’s something investors could keep in mind when considering going long CGX. However, shorts still have over 100 days to cover, so you can’t reasonably expect a squeeze to occur anytime soon.

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 Andrew Button has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Twitter. The Motley Fool recommends CINEPLEX INC.

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