Cineplex Stock vs. Air Canada Stock: Which Is a Better Buy Today?

There’s hope for Cineplex (TSX:CGX) stock and Air Canada (TSX:AC) stock with their strong Q2 results, but they’ll need to survive first.

| More on:
Question marks in a pile

Image source: Getty Images

The coronavirus pandemic has impacted tonnes of businesses for better or for worse. However, it has been the most unkind to businesses like Cineplex (TSX:CGX) and Air Canada (TSX:AC).

Cineplex stock

Cineplex’s last 12-month revenue is down 81%! With a ridiculous reduction in revenue, there’s no way its earnings could be good. Indeed, in the period, Cineplex booked a net loss of $545 million.

Thankfully, there’s light at the end of the tunnel. Its second-quarter (Q2) results showed a strong rebound versus a year ago from economic reopenings and reduced restrictions. This could be the start of the recovery of its fundamentals.

In Q2, Cineplex witnessed revenues jumping a whopping 195%, but that was compared to a low base in Q2 2020 during the onset of the pandemic. The entertainment company’s Q2 2021 revenues of nearly $65 million is about 15% of its Q2 2019 revenue of $439 million — let’s call that the normalized revenue.

It’s unfortunate, but the coronavirus has crippled Cineplex’s balance sheet. The company’s debt-to-asset ratio at the end of Q2 was overextended at 108%. Consequently, it had negative shareholders’ equity. The stock has shown signs of weakness lately, pulling back to the $12-per-share level.

Notably, Cineplex stock fell to as low as about $5 per share in late 2020. That gives you an idea of how low it could fall if things were to turn south but you expect the company to survive.

Because of the highly uncertain outlook and its poor balance sheet, Cineplex is, at best, a speculative stock that could deliver near-term upside potential of about 20% from current levels.

Air Canada stock

Air Canada’s last 12-month revenue declined 78%! With a big cut in revenues, Air Canada booked a massive net loss of $4.3 billion. Thankfully, Q2 could be the start of a turnaround of its fundamentals thanks to economic reopenings and loosened restrictions.

For the quarter, Air Canada saw revenues jumping 59% year over year. However, that was compared to a low base in Q2 2020 during the onset of the pandemic. The airline’s Q2 2021 revenues of $837 million is but about 18% of its Q2 2019 revenue of $4.7 billion, which is an assumption of a more normalized amount.

It’s too bad the coronavirus has damaged Air Canada’s balance sheet. The company’s debt-to-equity ratio is awfully high at 2,209%, while its debt-to-asset ratio is a whopping 98%. The stock has pulled back lately to the $23-per-share level.

Investors should note Air Canada stock fell to as low as about $12.50 per share in late 2020. This gives you an idea of how much it could fall if things were to turn south but you expect the company to survive.

Because of an uncertain outlook and a weakened balance sheet, Air Canada is, at best, a speculative stock that could appreciate about 30% in the near term.

The Foolish investor takeaway

Despite their recent dips, both Cineplex stock and Air Canada stock have recovered significantly from their pandemic market crash lows. If I had to place my bets in the speculative stocks today, I would consider Air Canada over Cineplex, as the former appears to have greater upside potential and lower downside risk. That said, it could be an even better idea to invest in these other Canadian growth stocks.

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.

The Motley Fool recommends CINEPLEX INC. Fool contributor Kay Ng has no position in any of the stocks mentioned.

More on Coronavirus

little girl in pilot costume playing and dreaming of flying over the sky

Air Canada Stock: How High Could it go?

AC stock is up 29% in the last six months alone, so should we expect more great things? Or is…

Read more »

eat food

Goodfood Stock Doubles Within Days: Time to Buy?

Goodfood (TSX:FOOD) stock has surged 125% in the last few weeks, so what happened, and should investors hop back on…

Read more »

stock data
Tech Stocks

If I Could Only Buy 1 Stock Before 2023, This Would Be It

This stock is the one company that really doesn't deserve its ultra-low share price, so I'll definitely pick it up…

Read more »

Aircraft Mechanic checking jet engine of the airplane

Air Canada Stock Fell 5% in November: Is it a Buy Today?

Air Canada (TSX:AC) stock saw remarkable improvements during its last quarter but still dropped 5% with more recession hints. So,…

Read more »

Airport and plane

Is Air Canada Stock a Buy Today?

Airlines are on the rebound. Does Air Canada stock deserve to be on your buy list?

Read more »

A patient takes medicine out of a daily pill box.

Retirees: 2 Healthcare Stocks That Could Help Set You up for Life

Healthcare stocks offer an incredible opportunity for growth for those investors who look to the right stocks, such as these…

Read more »

sad concerned deep in thought

Here’s Why I Just Bought WELL Health Stock

WELL Health stock (TSX:WELL) may be a healthcare stock and a tech stock, but don't let that keep you from…

Read more »

healthcare pharma

WELL Stock: The Safe Stock Investors Can’t Afford to Ignore

WELL stock (TSX:WELL) fell 68% from peak to trough, and yet there's no good reason as to why. So now…

Read more »