Cineplex (TSX:CGX) has been among the worst-performing stocks on the TSX, losing 79% in the last 10 years. Valued at a market cap of $522 million, Cineplex is a diversified media company that operates a chain of movie theatres. It has three primary business segments that include Film Entertainment & Content, Amusement & Leisure, and Media.
Its Film Entertainment business generates sales from theatre attendance, while the media segment includes cinema media and digital place-based media operations. Comparatively, the amusement and leisure business manages the operation and distribution of gaming and vending equipment.
Shares of the TSX stock were trading at all-time highs in 2017 and slumped significantly amid the COVID-19 pandemic. The company’s sales fell from $1.66 billion in 2019 to $418 million in 2020 and $656 million in 2021. As economies reopened and COVID-19 was finally brought under control, Cineplex increased sales to $1.26 billion in 2022.
Trading at less than 0.5 times trailing sales, Cineplex might seem an attractive buy for value investors. So, let’s see if the TSX stock can outpace the broader markets in the long term.
Is Cineplex stock a good buy now?
In the second quarter (Q2) of 2023, Cineplex reported revenue of $423.1 million, an increase of 21% year over year. Its net income rose to $176.5 million from just $1.3 million in the year-ago period. The company’s adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) also grew 31% to $102 million in the June quarter.
Its bottom-line expansion allowed Cineplex to repay $26 million in bank debt, which should also drive interest expenses lower, as it aims to de-lever the balance sheet and shore up the capital base.
Cineplex stock surged over 20% in the first five months of 2023. But shares are down over 8% in the past month as the company emphasized the ongoing strike in the U.S. could be a near-term headwind. Actors and writers in Hollywood have been protesting against the potential use of artificial intelligence content and residual payments for over three months, which has brought film and television production to a screeching halt.
What’s next for CGX stock price and investors?
Despite a hiatus in content production south of the border, Cineplex should benefit from the blockbuster releases of films such as Barbie and Oppenheimer. Additionally, titles such as Mission Impossible: Dead Reckoning, Part One allowed Cineplex to post its highest July box office results ever and the second-highest monthly box office results since December 2015.
Moreover, the company continues to enhance and expand its presence as an entertainment destination for Canadians in theatre and at home. It aims to capitalize on core media expertise and infrastructure to provide continued growth of Cineplex’s media business. Cineplex is also focused on scaling amusement solution concepts and driving growth by implementing customer-centric technologies.
Analysts tracking CGX stock expect sales to rise by 26.3% to $1.6 billion in 2023 and by 4.3% to $1.67 billion in 2024. Comparatively adjusted earnings are forecast to improve from $0.32 per share in 2023 to $1.09 per share in 2024.
Priced at eight times forward earnings, Cineplex stock is very cheap and trades at a discount of 50% to consensus price target estimates.
