Cineplex: Can Avatar Breathe New Life Into This Stock?

Cineplex (TSX:CGX) stock will probably see a boost from the successful Avatar movie. But does that make it a buy?

| More on:
movies, theatre, popcorn

Image source: Getty Images

Cineplex (TSX:CGX) stock has done pretty well since its 2020 lows. In October of that year, the stock hit an all-time low of $4.63; today, it trades for $7.84 — a 65% gain. True, the stock is way down from its all-time high (around $44), but the bet has paid off well for those who had the nerve to buy in 2020.

Today, Cineplex stock has some factors going for it that could produce strong results. The company’s revenue is likely to be bolstered by the performance of Avatar: The Way of Water, which has grossed $1.7 billion at the box office so far. It looks like Cineplex has a good quarterly report coming up, but will that be enough to make the company profitable again?

Avatar: A real catalyst

There is little doubt that Avatar: The Way of Water will cause Cineplex’s revenue to spike, leading to higher sales figures in the next earnings release. So far, the movie has

  • Grossed $1.7 billion;
  • Become the sixth-fastest movie to cross the $1 billion mark; and
  • Become the seventh highest-grossing movie of all time.

Incredibly, Avatar’s box office receipts just keep rolling in. On Sunday, I searched the movie in my local Cinema, and found that it was playing 10 times in a single day! This is really remarkable, because Sunday isn’t usually a very busy day at the box office. As it happens, my nearest cinema is a Cineplex, so this data point is directly relevant to CGX’s upcoming quarterly release.

Long-term trends less favourable

It definitely looks like Cineplex could potentially release good earnings in its upcoming quarterly report. However, some long-term trends look less positive. Over the last three years, Cineplex has

  • Seen its revenue decline by 9.6% per year;
  • Seen its free cash flow decline 36% per year (free cash flow is an all-cash-based earnings metric); and
  • Not delivered a single profitable year.

I think it’s possible that Cineplex could deliver a slightly profitable year in 2022 if Avatar really shakes things up. Its loss over the last 12 months was only US$32 million, which is much improved from the previous several hundred-million-dollar losses. However, there will not be a movie the likes of Avatar: The Way of Water every single year. So, it remains to be seen whether Cineplex will manage to turn things around in a lasting way.

Foolish takeaway

Having considered all of the relevant factors, I don’t think I’ll be buying Cineplex stock. The company has improved its earnings picture a lot since 2020, but it’s still losing money, and it has more liabilities than assets. That’s not to say that Cineplex can’t turn it around.

Its financial picture is better than that of its meme stock cousin AMC Entertainment, and it does have a massive blockbuster title showing at its theatres right now. Depending on how much money CGX makes off Avatar: The Way of Water, it could use the proceeds to pay off debt and turn its long-term story around.

For now, though, this stock remains a very risky bet. As far as Canadian domestic stocks go, there are better opportunities out there.

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 recommends Cineplex. The Motley Fool has a disclosure policy.

More on Investing

Doctor talking to a patient in the corridor of a hospital.
Investing

TFSA: Healthcare Dividend Stocks Are Perfect for Passive Income

Top healthcare dividend stocks like Extendicare Inc. (TSX:EXE) and others can provide huge passive income in your TFSA.

Read more »

TFSA and coins
Tech Stocks

TFSA: Invest in These 2 Stocks for a Legit Chance at $1 Million

Are you interested in building a $1 million portfolio? Invest $20,000 in these two stocks!

Read more »

edit Person using calculator next to charts and graphs
Investing

The Top TSX Stock on My Watch List Right Now

Here's why Alimentation Couche-Tard (TSX:ATD) remains a top TSX stock that long-term investors seeking growth and yield will want to…

Read more »

Hourglass projecting a dollar sign as shadow
Investing

3 Stocks to Add to Your TFSA ASAP

Given their stable cash flows and solid underlying businesses, these three stocks are excellent additions to your TFSA in this…

Read more »

edit Person using calculator next to charts and graphs
Dividend Stocks

Better Buy: Fortis Stock vs Enbridge

Fortis stock and Enbridge are top dividend stocks on the TSX today. Which stock is better buy for safe dividend…

Read more »

Canadian Dollars
Dividend Stocks

How to Make $1,500 in Passive Income 4 Times a Year

Blue-chip TSX stocks such as Enbridge can enable investors to create game-changing wealth over the long term.

Read more »

Woman has an idea
Investing

5 Stocks You Can Confidently Invest $500 in Right Now

Consider putting your surplus cash in these stocks for stellar capital gains.

Read more »

IMAGE OF A NOTEBOOK WITH TFSA WRITTEN ON IT
Dividend Stocks

TFSA: How to Easily Turn $10,000 Into $500/Year of Passive Income

You don't need to be a stock market expert to turn $10,000 into a $500 of tax-free passive income. Here's…

Read more »