Back in early 2020, just prior to the pandemic, Cineplex (TSX:CGX) stock was trading just south of $34, as it was set to be taken over.
Then the pandemic hit, and not only did it cause the acquisition of Cineplex to fall through, sending the stock plummeting, but it also massively impacted Cineplex’s operations.
The stock immediately fell by over 70% and, throughout 2020, fluctuated in price, trading between $5 and $16 a share.
Meanwhile, Cineplex’s revenue fell by 75%, and the stock unsurprisingly became unprofitable and lost over $369 million in 2020.
The impacts on Cineplex’s business are almost certainly not news to most investors. But it’s worth highlighting when you consider how far Cineplex has come since the first few quarters of the pandemic, but its share price has yet to follow suit.
In 2021, revenue improved from $418 million in 2020 to $657 million, up 57%. And in 2022, it came in at just shy of $1.3 billion, an increase of another 93.2%. Furthermore, over that stretch, Cineplex’s net losses have been shrinking. Yet compared to its early 2020 share price of $34, Cineplex is unbelievably cheap.
Although its recovery to this point has been impressive, and its stock price performance has been slightly surprising, what’s most exciting is the potential that Cineplex has going forward.
Let’s look at why there are $1.6 billion reasons to buy Cineplex stock today
While Cineplex’s revenue recovery was impressive given the restrictions it faced for two years through the pandemic, as well as the lack of content relative to historical standards, now that it’s operating in a much more normalized environment, the stock has a tonne of potential to finally getting its share price back on track.
Given all the blockbusters released this year and Cineplex’s impressive work to continue generating more revenue from each patron, analysts estimate Cineplex will generate revenue of more than $1.6 billion for the full 2023 year, just shy of its 2019 revenue, the last year before the pandemic.
In addition, when Cineplex reports earnings on February 8, investors are expecting that the stock will report normalized earnings per share of $1.78, which would be even higher than Cineplex managed to generate in 2019.
One thing to note
There’s no doubt Cineplex’s recovery has been impressive, and it has a tonne of potential going forward. However, in the near term, there is still uncertainty about Cineplex stock, especially after it sold off Player One Amusement Group, a non-core asset.
So, it’s not surprising that analysts are estimating a decline in revenue next year without Player One’s contribution.
Even with this disposition, though, Cineplex stock is still expected by analysts to generate earnings per share of $1.93 over the next two years.
Furthermore, analysts expect Cineplex to generate earnings before interest, taxes, depreciation and amortization of roughly $750 million over the next two years.
So, when you consider that Cineplex stock trades at just over $8 a share and has an enterprise value of just $2.4 billion, it’s clear that entertainment stock is trading exceptionally cheaply.
Therefore, it should be no surprise that of the six analysts covering Cineplex, five give it a buy rating and just one analyst rates Cineplex stock a hold. Furthermore, the average analyst target price of $13.11 sits at a 61% premium to where Cineplex stock closed on Friday.
So, if you’ve got cash to invest and are willing to buy and hold Cineplex while it continues to recover, it’s certainly one of the cheapest stocks on the market today.
