Netflix (NASDAQ:NFLX) and Cineplex (TSX:CGX) are two different angles to play Hollywood. Undoubtedly, streaming has had the upper hand on the cinema for many years now. However, valuations may already reflect the industry dynamic that continues to take hold.
As the streaming market matures, we may see fewer low-budget films released (think romantic comedies and all the sort) on the big screen. That said, never discount the power of going out to see a film. Blockbuster action can get bums in their seats. And in that regard, I continue to like the movie theatre business, even if it continues to feel the pressure from the video streamers.
Cineplex is a great value option these days at less than $10 per share
Historically depressed valuation metrics may indicate a good risk/reward scenario. But that’s not always the case, especially if there are industry headwinds and other issues that may eat into sales or earnings. Investors must always consider the stage that’s set in addition to the valuation they will pay. With a downturn that could be closing in, it’s arguable that lower-cost plays (what offers a better value per dollar than streaming?) are worth another look, given their resilience in the face of economic woes.
In that regard, Netflix still looks good. At the same time, Cineplex isn’t exactly an expensive option, especially when you consider the Scene+ loyalty program and the firm’s subscription offering that offers frequent moviegoers next-level value.
With Hollywood actors joining the writers on strike, questions linger as to how much Hollywood-tied firms will be affected. Undoubtedly, delays in hit shows or films are never great. But we’ve seen delays non-stop during the days of the COVID-19 pandemic. Arguably, strikes are less of a concern. Regardless, I don’t think investors should turn their backs on either Netflix or Cineplex stock right here. Any further negative reaction from the situation may prove to be a great buying opportunity for contrarian investors!
Better stock to buy right now: Netflix or Cineplex?
Cineplex has been up against it for years now. And though it seems like the stock can only move lower, I think it’s a better bet for investors. Netflix is doing so many things right and is on the right side of innovation. However, the valuation is getting a tad too lofty for my liking.
Indeed, Cineplex may not have secular tailwinds or catalysts riding on its side. But I think deep-value seekers are getting a good risk/reward tradeoff here for a company that could find itself back in recovery mode sooner rather than later.
The strong theatrical movie slate may not save Cineplex. But I think 0.6 times price to sales is a bargain-basement multiple that makes the stock way too cheap to ignore.
Investors bullish on streaming growth (or entertainment in general) may wish to hedge their bets with a small bet on NFLX stock, as it continues its march higher. Netflix isn’t just a streamer anymore; it’s a firm with a foot in the door of gaming. The 46.9 times trailing price-to-earnings multiple is rich, but it could get richer if Netflix continues to execute.
