Cineplex Stock Crashes 26%: What Now?

Cineplex (TSX:CGX) stock hit record results, so why did shares drop by 26% during the latest earnings report?

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Shares of Cineplex (TSX:CGX) crashed 26% in the last few weeks, despite earnings promising more growth from summer blockbuster hits. So, what exactly is going on, and what can investors take away from this?

What happened?

Despite strong earnings for the most recent quarter, Cineplex stock fell as management stated the ongoing writers and actors strike should hurt the company in the near future. Not just for the next few months but potentially years.

This comes as writers and actors recently passed 100 days on strike, putting a stop to writing films, television, and anything else related mainly to streaming services. As streaming services continue to collect massive income from their new products, writers and actors still aren’t seeing their fair share of the pie. This has led to a strike that’s gotten the attention of A-list celebrities and is now hurting the bottom line of companies like Cineplex stock.

The fear is that should the strike continue much longer, there could be a huge hiatus on production. And that would be awful for an industry that just recently started to recover from the pain caused by the pandemic.

Recovery or not

Shares of Cineplex stock hit all-time highs before the pandemic and was one of the top dividend stocks out there. That changed practically overnight, with Cineplex stock crashing during the March 2020 crash and still not making it anywhere near those share prices.

In fact, since the crash, shares of Cineplex stock have only bounced back once, and that was due to the effects of meme traders. Now, it’s at or near all-time lows, despite seeing some recovery in moviegoers.

During its latest earnings report, Cineplex stock reported total revenue increased 20.9% year over year, with net income reaching $176.5 million compared to $1.3 million in 2022. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) almost doubled to $60.3 million, with all-time record quarterly revenue and adjusted EBITDA achieved.

Why is it so depressed?

Investors have been hit before, and that could happen again. Right now is great, sure, but it’s also coming at a time of summer madness. There have been several blockbuster films, including Barbie. The film recently hit over $1 billion in global sales. Therefore, we’re dealing with a strong present, with management fearful about the near future.

In fact, should the writer and actor strike continue, next summer could see far less at the movies. This would severely impact Cineplex stock at the company’s historically best season. What’s more, it couldn’t be worse timing. After years of losses from the pandemic, it could now see even more losses on top of that. And who knows if the company can survive?

So, while Cineplex stock may be recovering, that may not be for long, which is why investors remain so fearful — and, honestly, for good reason. While it could certainly recover in the next few years, it could just as easily drop once more. If that happens, investors may be gone for good.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool recommends Cineplex. The Motley Fool has a disclosure policy.

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