With all the headwinds that the economy has faced over the last year and uncertainty in financial markets as a result of these headwinds, it’s no secret that plenty of Canadian stocks have lost value over the last year and a half. However, while several high-quality stocks are trading at a discount, one value stock with significant potential that could be a hidden gem in 2023 is Cineplex (TSX:CGX).
Cineplex actually hasn’t performed that poorly recently. Over the last 12 months, it’s down roughly 20%. However, more recently it has begun to recover. In fact, year to date Cineplex stock is up over 24%.
The reason why it’s one of the top value stocks to buy, even after its impressive rally to start 2023, is that it’s still down more than 70% since the start of 2020.
Cineplex was one of the hardest hit stocks by the pandemic. Its entire business was impacted by the pandemic. These headwinds have lasted longer for Cineplex than almost any other stock in Canada.
Therefore, while it remains ultra-cheap, it’s certainly one of the best Canadian value stocks to buy in 2023.
Why is Cineplex one of the best value stocks Canadian investors can buy now?
The fact that Cineplex trades undervalued certainly makes it an excellent value stock to consider today. Notably, the reason it’s one of the best stocks you can buy now is that in addition to being so cheap, it has also finally started to recover.
In fact, Cineplex stock is expected to see one of the largest increases in sales this year of any well-established business. And, more importantly, the entertainment company should see its profitability grow substantially both in 2023 and 2024.
Meanwhile, most other companies are seeing negative impacts on their revenue, profitability, or both, as a result of the current economic climate.
Therefore, there’s a ton of potential for this value stock to rally significantly this year as it continues to see a recovery in its operations.
Furthermore, the better Cineplex executes its recovery this year, the higher its valuation will be heading into 2024 as the market is typically forward-looking.
How cheap is Cineplex stock today?
Even after gaining 24% to start the year, Cineplex remains one of the best value stocks that Canadian investors can buy.
Right now, with analysts estimating that Cineplex could become profitable this year and earn normalized earnings per share (EPS) of $0.50, CGX is trading at just 20 times this year’s expected earnings.
Furthermore, analysts expect that as Cineplex stock progresses in its recovery, it could manage to report EPS of $1.19 in 2024. So with the stock trading at just $10 a share as of Friday’s close, its price to 2024 estimated earnings is just 8.4 times.
That’s not just ultra-cheap for any stock, but it’s unbelievably cheap for Cineplex stock. For comparison, in the five years leading up to the pandemic, Cineplex stock averaged a forward price-to-earnings ratio of 26.5 times.
It’s also worth pointing out that as Cineplex continues to make progress and execute well on its recovery, management recently raised the prospect of the value stock reinstating its dividend next year, especially as profitability improves.
Therefore, not only is Cineplex stock trading ultra-cheap today, it’s one of the few stocks with significant momentum in this environment. This growth makes this hidden gem one of the best and highest potential value stocks that Canadians can buy in 2023.
