For over three years now, the price of Cineplex (TSX:CGX) stock has been unbelievably low, leaving many savvy investors wondering when the entertainment company could finally recover.
Cineplex was one of the hardest hit stocks by the pandemic. Not only were film productions shut down or delayed heavily by the pandemic, but indoor capacity restrictions significantly impacted Cineplex’s ability to operate.
With the pandemic now in the rearview, though, Cineplex stock looks like it’s on the verge of a massive rally.
Therefore, given the potential it has to recover in price this year, here are three reasons why it has to be considered one of the best Canadian stocks you can buy in July.
The film industry has finally recovered
One of the most significant issues that Cineplex has faced as a result of the pandemic, particularly in the last year, was the lack of high-quality films as a result of production delays in Hollywood.
Many indoor capacity restrictions were lifted early in 2022, but without major blockbuster movies to draw viewers back to its theatres, the recovery in attendance took much longer than both management and investors had hoped.
This year, however, there’s no shortage of films being released. We’ve already seen several superhero movies debut, as well as a new Avatar movie. And in July, Barbie is coming out, another major studio film with a tonne of hype.
Therefore, one of the biggest headwinds that has been impacting Cineplex stock the last few years has been resolved, and the company can now focus on driving up attendance numbers and improving its revenue at its concession stands.
Cineplex’s box office numbers have been increasing rapidly
With many blockbuster films already released this year, the rapid recovery in attendance has been noticeable in the first half of 2023.
In the first quarter of 2023, Cineplex’s box office numbers climbed to 79% of what they were in 2019, the last full year before the pandemic. That’s not only a rapid recovery. It’s also impressive, considering there were just 130 titles released over that stretch in 2023, compared to 192 in 2019, a 33% reduction.
Furthermore, box office numbers have continued to accelerate. From April 1 to June 11, Cineplex stock’s box office numbers were roughly 88% of the same period in 2019.
And they continue to ramp up as new, highly anticipated films are released. For example, in the first 11 days of June this year, box office numbers were approximately 121% of what they were in the first 11 days of June 2019.
These turnouts not only show Cineplex is recovering, but also point towards a return to profitability, something investors have been waiting for for years.
Cineplex stock is significantly undervalued
The recovery of Cineplex’s operations and the film industry, in general, is certainly an excellent sign and a reason why Cineplex is one of the best stocks to buy in July.
However, the biggest reason why Cineplex stock looks so attractive today is its ultra-cheap valuation.
Right now, analysts expect Cineplex to report earnings per share of $1.02 in 2024. So with the stock trading at roughly $8.90 today, its forward price-to-earnings (P/E) ratio is just 8.7 times. For comparison, in the year leading up to the pandemic, Cineplex’s forward P/E ratio averaged 28.8 times, and the lowest it traded at was 18.8 times.
So with Cineplex trading below $9 a share, its forward P/E ratio is more than 50% below its lowest P/E ratio in the year leading up to the pandemic.
Even its enterprise value (EV)-to-earnings before interest, taxes, depreciation and amortization (EBITDA) ratio is unbelievably low. Currently, Cineplex has an EV of $2.5 billion, and its estimated EBITDA next year is $399 million, giving it a forward EV/EBITDA ratio of 6.2 times.
That’s much lower than the 8.4 times EBITDA that Cineplex stock averaged in the 12 months leading up to the pandemic.
Therefore, with Cineplex trading unbelievably cheap and with its operations rapidly recovering, it’s only a matter of time before we see a significant rally. So while the stock is still heavily undervalued, it’s undoubtedly one of the best investments you can make in July.
