With the pandemic ravaging the entertainment industry and movie theaters, Cineplex (TSX:CGX) and its peers have been waiting for years longer than companies in other industries to recover. The $628.21 million market capitalization Canadian cinema company sold off considerably due to the pandemic, decreasing its share prices to ultra-cheap levels.
However, the start of 2023 has painted a different picture for Cineplex stock. Trading for $9.93 per share as of this writing, Cineplex stock is up by 23.82% year to date. With no restrictions on indoor capacity, Cineplex stock can now fully accommodate moviegoers in all its locations. Additionally, production in Hollywood has recovered, and several blockbuster films are ready to be released this year.
That said, the recent writers’ strike has immediately impacted much of the entertainment industry. While a problem primarily for TV shows, the writers’ strike has raised concerns. Some Canadian investors are wondering whether the writers’ strike can derail Cineplex stock’s recovery.
Is Cineplex stock in danger of being derailed?
While the strike is negatively impacting many entertainment industry companies, it should not affect Cineplex stock in the short term. Since movie scripts are written years in advance of producing movies, there is likely a massive stockpile of movies that studios can still produce right now.
Additionally, most films slated to release this year have already finished production. In the near term, Cineplex stock may continue recovering from its losses induced by the pandemic. With several massive movies lined up for release this year, more moviegoers can push share prices further up for Cineplex stock.
Besides the writers’ strike, Cineplex is facing another challenge. The Competition Bureau is taking legal action against the cinema giant for advertising movie tickets at lower prices than what moviegoers must actually pay. According to the Bureau, Cineplex is breaking the law by adding more fees that raise the price of tickets it sells online.
Cineplex has responded to the allegations stating that its online fees are not misleading. Rather, the matter has been reviewed and decided upon by the Tribunal as being fair, adding that the fee complies with Canadian law. Cineplex stock has not seen a dip in its share prices despite the news, suggesting that investors are not worried about it.
Foolish takeaway
Outside its core theatre business, Cineplex has also started investing in other verticals to diversify its portfolio of revenue streams. By adding amusement and leisure segments to its business, it is creating more revenue besides through ticket sales. While promising, the segments need more time to ease Cineplex’s reliance on ticket sale revenue.
While it is arguably not a blue-chip stock, Cineplex stock is capable of addressing its issues and recovering to better levels. Granted, there is a significant degree of risk involved with the recent allegations, Cineplex stock can be a good asset to consider for investors with an appetite for higher risk.
