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.
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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.
