Is Cineplex Stock on the Verge of a Massive Rally?

Cineplex continues to recover well, and with the stock trading much cheaper than it did before the pandemic, it’s one of the best to buy now.

| More on:

Image source: Getty Images

As the stock market environment deteriorated over the last few days due to worries about the stability of financial institutions around the world, especially in the U.S., many companies, including Cineplex (TSX:CGX), have seen their stock prices fall once again.

Cineplex is trading at just over $7.50 per share at the time of writing, less than 5% off its 52-week low, creating a significant opportunity for long-term investors.

In fact, over the last year, even as its operations have begun to rebound rapidly, Cineplex stock has lost over 40% of its value.

So there’s no doubt that Cineplex stock is trading ultra-cheap. Yet, with the potential for a significant catalyst in the near term, as it continues to see an improvement in revenue and profitability, Cineplex could be on the verge of a significant recovery rally.

Cineplex stock is off to its best year since the pandemic

On Tuesday, Cineplex stock released its box office numbers for February. They showed that it earned 88% of February of 2019 revenue prior to the pandemic, in line with its performance in January.

With pandemic restrictions gone and tonnes of blockbuster movies set to be released this year, the film industry is also recovering from the pandemic. Likewise, many have been hoping and expecting Cineplex stock to see a significant rebound this year.

As the CEO, Ellis Jacob, said in the release, “These results demonstrate that when there is compelling content, consumer enthusiasm for theatrical moviegoing is as strong as ever.”

Plus, not only were box office numbers strong once again, but theatre food service revenue was actually higher than in the same month in 2019. That’s an impressive result, especially with many expecting a recession to be on the horizon and consumers to rein in their spending.

So if Cineplex can keep up this impressive performance going forward this year, the stock could be on the verge of a massive rally.

Cineplex is trading unbelievably cheap in this environment

Even before the recent sell-off in stocks over the last few days, Cineplex stock was already one of the cheapest on the market. But with the stock price continuing to fall in the near term, it’s now unbelievably undervalued.

At just over $7.50 a share, the stock is trading at 15 times its expected 2023 earnings. That’s not only the cheapest valuation it has had since its expected earnings turned positive, but it’s also cheaper than Cineplex traded at any point in the five years leading up to the pandemic.

Furthermore, while it’s expected to report normalized earnings per share (EPS) of $0.50 in 2023, analysts expect it to earn $1.00 in normalized EPS in 2024. Therefore, Cineplex stock is trading at just 7.5 times its expected 2024 earnings.

Cineplex also trades at an attractive forward enterprise value (EV) to earnings before interest, taxes, depreciation and amortization (EBITDA) ratio of just 6.6 times today.

That’s also cheaper than at any point during the five years leading up to the pandemic when Cineplex averaged an EV-to-EBITDA ratio of 11.2 times, roughly 70% higher than today.

The stock has become so cheap that its average analyst target price sits at roughly a 70% premium to where it trades today. And as Cineplex stock continues to recover and its EPS improves, those target prices should continue to increase.

So if you’ve been watching Cineplex waiting for an ideal time to buy the ultra-cheap stock, or if you’re just looking to take advantage of all the discounts in the stock market these days, Cineplex is one of the top investments to consider. This movie house could be on the verge of a massive rally.

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 Daniel Da Costa has no position in any of the stocks mentioned. The Motley Fool recommends Cineplex. The Motley Fool has a disclosure policy.

More on Investing

Hand arranging wood block stacking as step stair with arrow up.
Dividend Stocks

1 Growth Stock With Legit Potential to Outperform the Market

Identifying the stocks that have outperformed the market (in the past) is relatively easy, but selecting the ones that will…

Read more »

healthcare pharma
Tech Stocks

Well Health Stock Is Up 7% After Earnings: What Investors Need to Know

Well Health is benefiting from strong demand as it digitizes healthcare and strives to improve patient outcomes.

Read more »

money cash dividends
Dividend Stocks

Passive Income: The Investment Needed to Yield $1,000 Per Annum

Do you want to generate a juicy passive-income stream? Here's a trio of stocks that can generate a yield of…

Read more »

Dividend Stocks

Here’s the Average TFSA Balance in 2024

The average TFSA balance has steadily risen over the last six years and surpassed $41,510 in 2023. Will the TFSA…

Read more »

Shopping card with boxes labelled REITs, ETFs, Bonds, Stocks
Dividend Stocks

Invest $10,000 in This Dividend Stock for $1,500.50 in Passive Income

If you have $10,000 to invest, then you likely want a core asset you can set and forget. Which is…

Read more »

Supermarket aisle with empty green shopping cart
Stocks for Beginners

Is Dollarama Stock a Buy?

Dollarama stock (TSX:DOL) has seen shares surge on the back of strong performance and a dividend boost, but it also…

Read more »

potted green plant grows up in arrow shape
Dividend Stocks

TFSA Set and Forget: 2 Dividend-Growth Superstars for the Long Run

I'd look to buy and forget CN Rail (TSX:CNR) and another Canadian dividend-growth sensation for decades at a time.

Read more »

Payday ringed on a calendar
Dividend Stocks

1 Passive-Income Stream and 1 Dividend Stock for $781.48 in Monthly Cash

Looking for passive income? Don't take out a loan with that high interest involved. Instead, consider this method for years…

Read more »