Has Cineplex Stock Finally Bottomed Out?

Investors continue to watch Cineplex (TSX:CGX) for its much-hyped recovery. Is it safe to say that Cineplex stock has finally bottomed out?

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Since the pandemic started over three years ago, some businesses were hit harder than others. Cineplex (TSX:CGX) is one such example. But now that markets have reopened, has Cineplex stock finally bottomed out?

Let’s try to answer that question.

Is Cineplex a good investment?

The movie-and-popcorn model that Cineplex adheres to has remained largely the same for more than a century. That model is simple: Cineplex charges admission to a show and then provides concessions to patrons.

As simple as that sounds, Cineplex continues to struggle, as that business model is finally evolving. Would-be patrons are now more inclined to pay for access to entire streaming libraries. Streaming services often provide monthly unlimited access to that content library for less than the cost of a single movie admission.

Adding to those concerns, Cineplex now faces even steeper challenges thanks to the sheer number of streaming options. This is because during the pandemic several Hollywood studios invested billions into developing exclusive content that is only available on those digital channels.

Finally, let’s not forget that Cineplex’s bottom line (at least for its movie business) is largely dependent on the quality of films being churned out of Hollywood. If the quality of content declines, then so too will Cineplex’s box office revenue.

Despite those woes, there are still a few reasons to consider Cineplex as a good investment.

The company has diversified in recent years, moving away from its over-reliance on the movie-and-popcorn business. Those ventures include a successful (and growing) digital sign media segment as well as Cineplex’s growing network of Rec Room live entertainment venues.

Turning to in-theatre innovation, the company has implemented several unique and attractive features over the years. This includes its signature VIP service with menu ordering as well as renting out theatres for private parties and offering concession delivery services.

That on its own doesn’t make Cineplex a stellar buy-now opportunity, but it does help to showcase the small improvements that the company has made in recent years.

Has Cineplex stock finally bottomed out?

There’s no doubt that Cineplex still trades at highly discounted levels. In fact, since the pandemic began, Cineplex has dropped over 70%.

There’s also a growing belief among investors that Cineplex stock finally bottomed out earlier this year. In both January and February of this year, box office numbers came in at 88% of their pre-pandemic levels.

It’s also worth noting that during the fourth quarter of 2022, Cineplex reported a net income of $10.2 million. This is a stark improvement over the $21.8 million loss reported in the same period last year.

That improvement comes at a time when sharp inflation and rising interest rates are causing plenty of volatility that has dragged the entire market down.

Should you buy Cineplex stock now?

No stock is without risk, and that includes Cineplex. Cineplex struggled during the pandemic when its theatres were shuttered. The company also continues to struggle with returning to its pre-pandemic 2019 box office figures.

That being said, Cineplex is improving while the stock price remains massively discounted over its pre-pandemic levels. That discount makes it a significant value opportunity for long-term investors with an appetite for some risk.

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 Demetris Afxentiou 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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