Is This Your Last Chance to Buy Cineplex Stock Under $10?

Cineplex is seeing a rapid recovery in its operations, and its stock is trading unbelievably cheaply, making it one of the best to buy now.

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In the current market environment, there’s no question that investors have the opportunity to buy many Canadian stocks while they are dirt cheap. However, even with all the choices that investors have today, there might not be a cheaper stock with more short-term catalysts than Cineplex (TSX:CGX).

Cineplex stock is one of the few companies in the stock market that’s yet to recover from the pandemic. As a matter of fact, due to the impact of the pandemic and the current market environment, Cineplex has actually continued to lose value, even as pandemic restrictions were finally dropped last year, and its operations have begun to recover.

Over the last 12 months, its stock price has declined by 38%, while its sales have increased by 93.2%.

And although it’s continued to selloff in recent months, despite a recovery in its sales, with the stock now on the verge of profitability once again, there may not be a better time to consider Cineplex than right now.

Cineplex traded under $10 per share in the initial months of the pandemic but recovered slightly along with the market and traded above $10 a share for essentially all of 2021. However, when the market environment became a lot more uncertain in 2022, Cineplex sold off again.

Since the start of 2022, it’s down roughly 40%, and it hasn’t traded above $10 since December of last year. Furthermore, before the pandemic, the stock was trading at just under $34 a share.

So, if you have Cineplex stock on your watchlist or have just been looking to buy some of the cheapest stocks on the market, here’s why now is an ideal time to pull the trigger.

Cineplex stock expects its occupancy levels to continue to increase

Although most pandemic restrictions were dropped early last year, Cineplex stock still saw a slower recovery in occupancy than many investors had hoped for due to a lack of compelling content coming from Hollywood studios, which were also heavily impacted by the pandemic.

However, now with many blockbuster films set to be released this year, there is a tonne of potential for Cineplex stock to continue seeing its sales increase in addition to its profitability rebounding.

For 2023, analysts expect its sales this year will rise to roughly $1.55 billion — a more than 22% increase from last year. Furthermore, analysts expect it will report normalized earnings per share (EPS) of $0.50 this year, up from a loss of $0.10 per share last year.

Therefore, there’s no question that the stock is cheap. And if you’re worried about the impact a recession could have on Cineplex, it’s worth noting that box office numbers for movie theatres have historically remained strong through economic pullbacks.

That’s not necessarily surprising. A movie is a relatively inexpensive activity to do on a weekend afternoon or free evening. Plus, in recent months, not only have its box office numbers been recovering, but its earning record concession sales per patron.

With Cineplex expected to see its EPS rise dramatically this year, the stock is currently trading at a forward price-to-earnings (P/E) ratio of 16.4 times. For reference, in the year leading up to the pandemic, it had an average P/E of 26.1 times.

Furthermore, Cineplex’s earnings before interest, taxes, depreciation, and amortization (EBITDA) are expected to increase by a whopping 42% this year. So, the stock is trading at an enterprise value (EV) to EBITDA ratio of 6.7 times today compared to its average of 8.2 times in the year leading up to the pandemic.

Therefore, if Cineplex was to reach a P/E of 26 times, it would be over $13 a share, and if it hit an EV-to-EBITDA ratio of 8.2 times, it would be worth more than $15.75.

And that’s just based on its expected earnings this year. Next year, both sales and profitability are expected to continue recovering.

So, it’s not surprising that the average analyst target price for Cineplex is $12.81 — a more than 50% premium to Tuesday’s closing price.

Therefore, if you have Cineplex on your watchlist or have just been looking for a high-quality value stock to buy in this environment, the entertainment stock looks like one of the best investments you can make today.

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.

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