Down by 44.10%: Is Cineplex Stock a Good Buy Right Now?

Trading for dirt-cheap prices and with a potential recovery on the horizon, Cineplex stock might be an excellent buy right now.

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Ever since the pandemic began, few industries have faced an economic crunch as bad as the cinema and entertainment space. Cineplex (TSX:CGX) has suffered significant losses amid the pandemic. While it was already facing challenges with the rise of streaming services disrupting foot traffic to cinemas, the onset of a global health crisis tanked its revenue entirely.

However, as the world continues moving past the pandemic-induced difficulties, Cineplex stock finally looks well positioned enough to be a stock you can add to your portfolio. Today, we will look at the battered and bruised cinema stock to help you determine whether it might be worth investing in right now.

Creating more revenue streams

The rise of streaming services was already eating into potential revenue for cinemas. As people remained stuck in their homes, the pandemic allowed their popularity to explode. Fortunately for Cineplex stock, the company’s management decided to prepare for that by creating some diversity in its revenue stream.

Cineplex created another opportunity to generate more cash flow by introducing its recreation room and games. It stopped relying solely on box office income by offering entertainment, food, and exciting activities. Additionally, the company also created a cinema advertising network to boost its revenue.

By using well-placed ads in its pre-show time slots, placing signage in various locations, and establishing a proper network, more than a third of its revenue now comes from sources other than movie ticket sales.

It was not long ago that its entire cash flow depended on ticket sales. The company’s media segment is increasing rapidly, growing revenue by 71% in 2022 alone. Its recreation segment also reported an 83% revenue growth last year.

Improvements for the film industry

By expanding to display a broader array of films from several international markets and adding VIP experiences for movie-goers, Cineplex also shored up its core business to attract a wider audience. With new movie-going experiences, Cineplex also offers flexible pricing to increase attendance and generate more revenue per patron.

Additionally, the lack of major blockbusters being released in 2022 will no longer be a problem for cinemas. With several massive movies being released this year, Cineplex stock is well positioned to see a major recovery in its revenue and attendance this year. With its recovery on the horizon, analysts estimate that Cineplex stock will earn normalized earnings per share of $0.50 in 2023.

Foolish takeaway

Trading at a 44% discount from its 52-week high at writing, Cineplex stock might finally become profitable this year. At current levels, it has a forward price-to-earnings (P/E) ratio of 16.81. Compared to a P/E ratio of 28.7 before the pandemic, Cineplex stock is arguably extremely undervalued right now.

While the fears of a recession looming overhead still entail a degree of risk with investing in the stock, a recovery is there on the horizon. If the market and overall economy post a recovery in 2023, Cineplex stock can be one of the best stocks to own for wealth growth.

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 Adam Othman has no position in any of the stocks mentioned. The Motley Fool recommends Cineplex. The Motley Fool has a disclosure policy.

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