Although most stocks recovered from the pandemic long ago, and companies across almost every sector are now dealing with macroeconomic headwinds such as surging inflation and rising interest rates, Cineplex (TSX:CGX) stock just began its recovery in 2022 and now looks like one of the best Canadian stocks to buy in 2023.
Rising risk in the market is certainly impacting most Canadian stocks, including Cineplex. But with the stock as well as the film industry now recovering fully from the pandemic, the major entertainment company has tonnes of upside potential.
Even with the company on the verge of recovery this year, and sales estimated to grow another 22% from 2022, the stock price has hardly budged. In fact, over the last year, the stock has lost more than 39% of its value.
And there’s no better time to buy high-potential stocks than right before the rest of the market, while these companies are still cheap and out of favour.
Here are three reasons why Cineplex could be the best Canadian stock to buy this year while it continues to trade dirt cheap.
There is a tonne of blockbuster films being released this year
Although most pandemic restrictions were lifted early in 2022 and attendance started to pick up, the recovery has been slower than Cineplex and its investors have hoped.
However, one of the most significant reasons why the recovery in attendance has lagged is due to a lack of major films being released in 2022.
Many movies take years to make, and with production delays due to the pandemic, there were few blockbuster films ready in 2022.
This year, however, is a much different story, with dozens of major studio films set to be released, which should help Cineplex stock to see a major recovery in both its attendance and revenue through 2023.
Cineplex is expected to be profitable this year
Another reason why Cineplex could be one of the best Canadian stocks to buy this year is that after three years of losing money, it’s finally expected to earn a profit this year.
Even after 2022, when Cineplex managed to earn 76% of the sales that it did in 2019, it still saw a net loss. This year, though, with Cineplex expected to recover significantly, analysts estimate that it will earn normalized earnings per share (EPS) of $0.50.
Not only does that show Cineplex is expected to perform well this year, but with the stock trading at $7.79 as of Friday’s close, Cineplex has a forward price-to-earnings (P/E) ratio of just 15.6 times. Furthermore, it trades at just 7.8 times its expected 2024 earnings.
Cineplex is ultra-cheap, making it one of the best Canadian stocks to buy now
With Cineplex’s profitability as well as its earnings before interest, taxes, depreciation, and amortization (EBITDA) increasing significantly, at the same time that its stock has continued to lose value over the last 12 months, Cineplex certainly has the potential to be one of the best Canadian stocks to buy this year.
The stock is not just cheap. It’s extremely undervalued. For example, in the year leading up to the pandemic, Cineplex traded at an average forward P/E ratio of 28.7 times compared to just 15.6 times today.
Furthermore, over that stretch, it had an average forward enterprise value (EV) to EBITDA ratio of 8.4 times. Meanwhile, today Cineplex stock has a forward EV to EBITDA ratio of just 6.6 times.
Therefore, while Cineplex trades around $8 a share and continues to see its operations recover, it’s certainly one of the best Canadian stocks to buy in 2023.
