$1.6 Billion Reasons to Buy Cineplex Stock Today

The slow and steady recovery for Cineplex stock could soon pay off for shareholders with a significant rally, as it returns to profitability.

| More on:
movies, theatre, popcorn

Image source: Getty Images

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.

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 Daniel Da Costa has no position in any of the stocks mentioned. The Motley Fool recommends Cineplex. The Motley Fool has a disclosure policy.

More on Investing

analyze data
Dividend Stocks

2 Dividend Stocks I’d Buy if They Fall a Bit

Consider buying Brookfield Asset Management (TSX:BAM) and another top stock on a larger pullback.

Read more »

Man holding magnifying glass over a document
Stocks for Beginners

Watching This 1 Key Metric Could Help You Beat the Stock Market

This data marker can tell you exactly what you can expect from the future of companies, and whether that's a…

Read more »

Payday ringed on a calendar
Dividend Stocks

TFSA Investors: 2 of the Best Monthly Dividend TSX Stocks to Buy Right Now

Create a monthly tax-free income stream in your TFSA by investing in these two TSX dividend stocks that pay investors…

Read more »

edit Colleagues chat over ketchup chips
Investing

3 Defensive TSX Stocks for Lower-Risk Investors

These three Canadian stocks could be great picks for a defensively minded investor.

Read more »

Dollar symbol and Canadian flag on keyboard
Dividend Stocks

3 Top Canadian Dividend Stocks to Buy Under $30

Given their stable cash flows and healthy dividend yields, these three dividend stocks are excellent additions to your portfolio.

Read more »

Investing

3 Top Reasons to Buy Great-West Lifeco Stock After its Q4 Earnings

These factors make GWO stock attractive for investors looking for a fundamentally strong, dividend-paying stock from the financial sector.

Read more »

money cash dividends
Dividend Stocks

Beat the Dow Jones With This Cash-Gushing Dividend Stock

Here's why this high-dividend TSX stock should beat the Dow Jones index in 2024 and beyond.

Read more »

Pixelated acronym REIT made from cubes, mosaic pattern
Dividend Stocks

The Top Canadian REITs to Buy in February 2024

Are you looking to boost your income and buy some stocks at a bargain? Here are three top REITs that…

Read more »