Cineplex (TSX:CGX) stock has been down and out ever since the COVID pandemic struck back in the early days of 2020. Indeed, it’s been a very tough recovery, not just for Canadian movie theatre chain Cineplex, but the industry as a whole.
With Hollywood actors joining writers in a strike that appears to be a gut-punch to the industry, it’s not too difficult to think that investors are looking well beyond the incredible box office success that was the Barbenheimer — a nickname given to the opening weekend for hit films Barbie and Oppenheimer — weekend.
Is it right for investors to discount Barbenheimer for the Hollywood strike headwinds that could cause a potentially lengthy box office drought in the future?
Possibly. However, I do think that longer-term investors should give the battered movie theatre plays a second look, while everyone else on Wall and Bay Street is more focused on the Hollywood strike headwinds.
Hollywood strikes won’t last forever. But do brace for a slowdown.
First, strikes do not last forever. Though the current Hollywood strikes could stay at a stand-still for longer than expected, those who have a 5-10 year investment horizon don’t need to worry too much about the matter. Indeed, Hollywood strikes are the last thing the industry needs, with the hot summer season in full swing.
If you went to the local Cineplex over the past month, you’ve probably seen a lot of excited moviegoers dressed in pink! Undoubtedly, it has been a long time since we’ve had so much foot traffic at the movie theatres.
Clearly, there’s still impressive demand to release, as more friends catch a film on the silver screen. The Hollywood strikes will weigh heavily on supply, though. And until it’s resolved, shares of Cineplex may struggle to really break out past the $10 per-share mark.
In any case, long-term investors should be comforted that Canadian consumers are more than willing to catch high-quality content on the big screen. Hollywood strikes are a medium-term headwind that I view as transitory. Longer-term, I do think more high-traffic weekends could be in the cards.
Where will Cineplex be in five years?
Long-term investors should pay more attention to the post-Hollywood-strike (and recessionary) environment that could weigh down results through 2024. Indeed, it’s tough to be optimistic about any cinema firm as it seems to get hit with headwind after headwind. If it’s not pandemic lockdowns, it’s strikes. And, of course, there are video streamers hungry to take away market share from the silver-screen juggernauts.
In any case, Cineplex still stands out as a potential deep-value play that has a pathway to higher levels. Over the next five years, I’d look for Cineplex to do its best to beckon moviegoers again. While it cannot control the quality and quantity of content, it can improve the customer experience. That means Cineplex could expand upon its pricier viewing options. Think ScreenX (a panoramic film format) and IMAX.
Sure, modern home theatre systems are more competitive with cinemas. However, it’s tough to stack up against the likes of an IMAX or ScreenX which, I believe, could really give Cineplex a longer-term shot in the arm.
The bottom line
It’s not just viewing formats that could drive foot traffic. Look for Cineplex to improve across all aspects of the moviegoing experience. Whether that means adding more arcade games or new food concepts, I do think the longer-term future is bright.
For now, it’s all about the Hollywood strikes. Should strikes end over the coming months (I think they will), look for CGX stock to get a jolt.
