Most seasoned investors have been patiently waiting for something that was expected before the pandemic started. The long-awaited recovery of Cineplex (TSX:CGX). Now that the stock itself costs less than a movie ticket, it begs the question.
Is Cineplex (finally) a good buy right now? Let’s try to answer that question.
The story so far…
Cineplex is best known for its movie theatre business. There’s a good reason for that too; the company is the largest movie screen operator in Canada with 170 theatres with over 1,600 screens stretching from coast to coast.
Less known is the fact that Cineplex is the name behind several well-known entertainment brands. This includes both the Rec Room and Playdium venues as well as digital commerce and media segments.
In short, the company has diversified in recent years outside of its core movie-and-popcorn business, but that segment still comprises the bulk of Cineplex’s earnings. Those earnings took a steep dive during the pandemic when theatres remained shuttered.
Fortunately, things have improved. For example, let’s look at the most recent quarterly update. In fact, in that most recent quarter, Cineplex broke several records.
This includes the company posting its highest quarterly revenue ever, $463.6 million, as well as box-office revenues spiking 50.9% to $188.2 million. The box office results were fueled by strong showings of the summer blockbusters Barbie, Oppenheimer, and Mission Impossible: Dead Reckoning.
Interestingly, over 40% of that revenue comes from the more premium experiences that Cineplex offers. This includes both IMAX, VIP, and other services, which are important offshoots of the core move-and-popcorn business. (more on this in a moment).
Collectively, those blockbusters led to Cineplex’s quarterly attendance surging to a whopping 15.7 million patrons. By way of comparison, in the same period last year, Cineplex saw attendance peak at 11.1 million. That’s not bad, considering the stock costs less than a movie ticket.
Surely, this must mean that the stock has recovered and is firing on all cylinders, right?
Where Cineplex stands today
As of the time of writing, Cineplex trades at just shy of $9, which means it costs less than a movie ticket. In fact, over the past five years, Cineplex has shed 65% of its value.
Based on recent results, the company is set to return to its pre-pandemic levels soon, but the stock price hasn’t kept up with that potential.
That’s not all. Cineplex has done well in expanding its in-theatre and adjacent business ventures. The premium in-theatre offerings, such as the VIP service, provide a higher price-point and unique experience to patrons that promise strong growth. This provides an exceptional service to counter the value proposition of streaming services.
Outside of that core theatre business, Cineplex’s Rec Room and Playdium ventures continue to see strong growth. These venues also provide some diversification from the core theatre segment.
The one pre-pandemic hallmark that has yet to emerge is Cineplex’s dividend. The last payout was in early 2020, and discontinuing the dividend played a part in the stock’s dip. Still, the company hasn’t been coy about its desire to reinstate its dividend in the future.
So then, given that potential, should investors consider buying Cineplex when it still costs less than a movie ticket?
Final thoughts
Even the most defensive of stocks carry some risk. In the case of Cineplex, that risk has remained at the forefront for the past several years. This includes not only the Cineworld deal but the impact of streaming, the pandemic, and, most recently, the strikes we saw last year.
In short, prospective investors with long-term timelines and a significant appetite for risk may see a huge opportunity in buying Cineplex right now.
