Why Cineplex (TSX:CGX) Stock Popped 23% on Wednesday

Despite today’s massive rally, Cineplex (TSX:CGX) stock is still down about 60% from its 2019 closing level.

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What happened?

The shares of Cineplex (TSX:CGX) rose by well more than 20% on Wednesday morning to as high as $14.48 per share. While CGX stock erased some of these gains later during the session, it was still hovering near $13.33 per share with about 13% advances from its previous day’s closing price. With this, Cineplex stock is now trading with solid 45% year-to-date gains.

So what?

If you don’t already know, Cineplex is a Toronto-based entertainment company with a market cap of about $850 million. The company operates a circuit of more than 170 movie theatres and location-based entertainment venues.

Today’s massive rally in CGX stock came a day after the Canadian entertainment firm received a favourable decision from the Ontario Superior Court of Justice in its legal battle against the international movie theatre company Cineworld Group. In June this year, Cineworld aborted a deal worth nearly $2.8 billion to acquire Cineplex. Following this, Cineplex sued Cineworld for backing out of the deal, seeking damages.

In its latest press release, Cineplex’s management revealed that “the court found Cineplex acted properly” and “denied Cineworld’s counterclaim against Cineplex.” In its decision, “the court awarded damages for breach of contract to Cineplex in the amount of $1.24 billion,” it added.

Now what?

This legal victory over Cineworld means a lot for Cineplex at the moment as it continues to go through a tough business environment. After settling at $33.85 per share at the end of 2019, the COVID-19-related woes and restrictions triggered a massive selloff in its stock, as it tanked by about 73% last year to just $9.27 per share. While CGX stock has recovered sharply this year amid gradually easing restrictions, it’s still down about 60% from its 2019 closing level.

Over $1 billion in damages, which it’s expected to receive from Cineworld after this ruling, could financially help Cineplex in reviving its business in the near 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.

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

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