Cineplex Stock Looks Like a Steal at $8 and Change

Cineplex (TSX:CGX) stock is starting to look like a great deal as it looks to add to its recent swing into profitability.

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Shares of Cineplex (TSX:CGX) have been oversold and forgotten about for quite a while now. Undoubtedly, the pandemic lockdown days could not have come at a worse time. And though the economy has been open for a few years, CGX stock hasn’t really regained much of the ground it has lost from the crash of 2020.

Indeed, it’s tempting to just throw in the towel on the top Canadian movie chain already. The market cap currently sits at $531.1 million, a fraction of what it once was. With video streamers and big-budget content creators also facing quite a bit of pressure in recent years, questions linger as to how Cineplex has made a return to its former glory.

It will not be easy for Cineplex to turn things around in a sustainable way, given the magnitude of its secular downfall. The company has been trimming away at costs to inch back to profitability. In its most recent quarter, it seems like such efforts are finally starting to take effect, with the firm posting a profit for the first time in quite a while.

While I view such moves as steps in the right direction, there’s still a massive amount of uncertainty surrounding the firm as it looks to compete in an inflationary environment where many households are aching to trim costs across the board.

Undoubtedly, the pain at the grocery store has continued, with higher prices and a relative lack of value. Until the pace of price hikes of such necessities begins to peak and perhaps come down a bit, it may prove tough for Cineplex to get bums in seats at current prices. As Cineplex looks to stage a comeback, it’ll need to continue diversifying well beyond Hollywood. After all, there can’t be a Barbenheimer boom every weekend.

Cineplex: Could its arcade bets turn the tides?

Now that Cineplex has had the opportunity to cut costs strategically, it may have enough financial firepower to continue investing in diversification efforts. Most notably, location-based entertainment, as Cineplex calls it, could be key to sending CGX shares higher again. Playdium and Rec Room have been intriguing entertainment venues that many Canadians have flocked to.

As rates begin to come down (the Bank of Canada’s next move should be a cut), Cineplex may just have what it takes to pick up where it left off with the non-box office business before the pandemic lockdowns sent CGX stock into a historical funk.

Personally, I think Playdium and Rec Room could help CGX stock add to the momentum it put in since the beginning of April 2024. At around $8 and change, expectations are pretty close to the floor, at least in my humble opinion. And as Cineplex looks to give sales a jolt now the box office is encountering a bit of a slump.

The Foolish bottom line

In the age of streaming, Cineplex needs to be able to withstand the occasional drought at the box office. With arcades and other entertainment offerings, I believe Cineplex can improve its ability to roll with the punches as theatrical releases fail to get consumers to drive out to the movie theatre and open up their wallets.

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 Joey Frenette 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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