The Motley Fool

Why I’m Avoiding Cineplex for the Rest of 2021

movies, theatre, popcorn
Image source: Getty Images

Cineplex (TSX:CGX) is Canada’s largest movie theatre operator. The company has faced the toughest period in its history since the beginning of the COVID-19 pandemic. Its shares have climbed 53% in 2021 as of close on August 13. Better yet, it enjoyed a 10% week-over-week bump. Today, I want to discuss why I’m still avoiding Cineplex in the weeks ahead. Moreover, I want to look at a TSX stock I’d snatch up instead.

How have movie theatres performed in recent weeks?

The summer movie schedule has brought surprises and disappointments. Moreover, it has solidified the pedigree of profit machines like the Fast and the Furious franchise. Should investors be encouraged by the box office performance after Cineplex reopened its doors in Ontario?

The Suicide Squad had received some hype coming into July. However, the James Gunn-directed film has failed to recapture momentum for the super-hero genre. This past weekend, its slipped 70.5% after what was already a rough $26.1 million opening weekend. That represented the biggest week-over-week drop in box-office revenue for a big budget comic book movie since Shaquille O’Neal’s Steel. This is a tough pill to swallow for a film that boasted a $185 million budget.

Ryan Reynolds’s new vehicle Free Guy picked up some of the slack over the weekend, raking in $28 million over the weekend. Meanwhile, F9 became the first North American film to rise above $500 million worldwide since the end of 2019.

Should Cineplex be worried about the fourth wave of COVID-19 in Canada?

Earlier this month, I’d discussed whether the rising Delta variant posed a risk to Cineplex and its peers. Recent data suggests that a fourth wave of the pandemic is already underway in Canada. However, there are hopes that the country’s high vaccination rates will prevent a crisis.

Businesses are calling for the government to avoid increased restrictions and lockdowns going forward. Indeed, this has the potential to torpedo any momentum that service-oriented industries have built in the summer. Cineplex will be watching these events unfold very closely.

The company released its second-quarter 2021 results on August 12. Cineplex opened its doors for customers in Ontario on July 17. With this, it hopes to significantly reduce its cash burn and see a big boost in revenues going forward. The earnings release spurred some optimism that stopped the bleeding for Cineplex stock, at least in the near term.

Despite the optimism, I’m still skeptical of the traditional cinema at this juncture. Recent box office results suggest that it will be months, perhaps years, before movie theatres see the kind of activity it experienced during the major blockbuster releases in the 2010s. That is why I have my eyes on another TSX stock instead.

Here’s a TSX stock I’d add instead today

In July, I’d suggested that investors consider a restaurant stock over Cineplex. Today, I’m more interested in WildBrain (TSX:WILD). The Halifax-based company develops, produces, and distributes media content. It is a small player in the streaming space, but still one worth watching. Moreover, it already has a strong footprint in the children’s media content segment. It owns content like Peanuts, Arthur, and many others.

Shares of this TSX stock have climbed 48% in 2021 as of close on August 13. This is a streaming stock worth snatching up for the long term.

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 stocks mentioned. The Motley Fool recommends CINEPLEX INC.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.