Shares of Cineplex (TSX:CGX) have been up against it for quite some time now. Even after one of the biggest box office weekends (so-called Barbenheimer weekend), the stock has struggled to sustain any sort of meaningful rally.
Undoubtedly, Hollywood is not the place to be for investors these days — not with the strikes going on right now. Indeed, the COVID pandemic was a major hurdle for the movie industry. And this latest actor and writer strike seems to be yet another road bump — not just for the movie theatre companies but big-media players that broke into the streaming space. Strikes have been pretty painful for just about everybody.
Indeed, Hollywood strikes are a concern for Cineplex but not the sole cause of its woes. The rise of video streaming has caused some sort of secular downtrend for movie theatre companies. Even after a horrific pandemic, though, Cineplex is still standing. And I think that Barbenheimer weekend will not be the last time the box office really heats up.
The box office could stay hot in late summer
As we head into late summer, the latest Mission Impossible film seems like it could keep the box office segment pretty hot. In any case, investors seem to be focused mostly on the negatives when it comes to Cineplex stock. It’s hard to be bullish with the Hollywood strike, after all. It introduces a huge haze of uncertainty and could pave the way for several quarters of lacklustre numbers at the box office.
At this juncture, it seems like the Hollywood strike could last longer than expected, even as writers begin to feel a bit of financial pressure. In any case, expect Cineplex to ride out the turbulent times to the best of its ability. The company has been through tougher times, after all!
Cineplex stock: What about valuation?
Cineplex stock does not seem like any sort of deep-value play at 47.4 times trailing price to earnings and 22.5 times forward price to earnings. Still, the company seems to be on the right track, with quarter-to-date box office revenues at around 88% of pre-pandemic levels, according to Cineplex. It’s been a long, gruelling road to near normalcy. And it’s not over yet, even with strikes thrown into the mix.
In the long term, I see a pathway toward a full recovery to pre-pandemic box office levels. And though a strike could delay things, I’m still encouraged by management’s longer-term plans to diversify away from the box office. Cineplex isn’t just a movie theatre chain; it’s an entertainment company that could have something special in Rec Room, as it looks to slowly but steadily expand its presence across the nation.
The bottom line on shares of CGX
Yes, there are headwinds ahead as Canada sinks into a recession while movie theatre giants begin to feel the pain from the ongoing Hollywood strike. Still, I’d not give up on Cineplex stock, as it seems priced with very low expectations in mind. The strong Barbenheimer box office weekend, I believe, demonstrates that the silver screen is going nowhere, even in the era of streaming.
For now, Cineplex is a great value buy for contrarian investors.
