Down by 75%: Is 2024 Finally the Time to Buy Cineplex Stock?

Cineplex stock still trades at a considerable discount from its pre-pandemic highs, but it likely remains a high-risk bet for investors in 2024.

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The broader Canadian stock market appears to be on the mend. As of this writing, the S&P/TSX Composite Index is up by 11.95% from its October 2023 levels. This uptick in the Canadian benchmark index suggests an imminent bull run. For all the positive momentum, not every stock has seen a strong recovery in the last few weeks.

Cineplex (TSX:CGX) stock continues to trade at a considerable discount of 75.39% from its pre-pandemic highs. After years of being in a rut, the pandemic-induced challenges might have subsided. However, the movie theatre industry seems to be dealing with more obstacles than it has the time to recover from.

Typically, such a steep discount suggests a stock is undervalued. However, that might not be the case with Cineplex stock, despite a mixture of good and bad news for the cinema industry and Cineplex stock itself.

The challenges for Cineplex stock

2023 was finally a year of some positive momentum for the cinema industry. The release of two big films on the same weekend, namely Oppenheimer and Barbie, and it was dubbed the Barbenheimer weekend opening. This was good news for the return to cinemas. After a significant downtrend of people going to watch the movies since the pandemic began, the industry undoubtedly needs more major releases.

However, with the rise of streaming services and the recent Hollywood writer strikes causing problems for even them, the theatre world might not be close to getting out of the woods. This became apparent after the success of the Barbenheimer release weekend, doing little to budge Cineplex shares beyond the 4.36% in the last 12 months.

The Hollywood industry might feel more optimistic in light of the strikes reaching a reasonable resolution. Perhaps it might trigger a better performance for the Canadian cinema scene in 2024. However, it might be too soon to be hopeful about Cineplex stock.

Some positives for Cineplex stock

Despite a sluggish macro environment in 2023, the release of some big movies saw people flock in droves to cinemas. Cineplex saw its sales rise by 33.7% in the first three quarters of fiscal 2023 compared to the same period in the previous year.

Theatre attendance rose to 32.7% in the same period, allowing Cineplex stock to report $176 million in net income in that period and considering that the same period in the previous year saw it report $10 million in losses, that is better news.

The Barbenheimer weekend saw its third-quarter box office earnings rise to $188.2 million. Overall, Cineplex still enjoys a leading market share in Canada and continues to diversify its revenue streams with the likes of its food service and amusement businesses.

Foolish takeaway

Many new movies prefer the theater-first approach, spelling good news for the cinema space. We can conservatively consider the cinema industry to be on the mend. However, it is far too soon to reconsider Cineplex stock as a potential market-beating holding for your self-directed portfolio.

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 Adam Othman 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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