Over the last year, I have written a lot about Cineplex Inc. (TSX:CGX). It has been my belief that if we looked at things from a longer-term lens, we could easily conclude that Cineplex stock has been (and still is) grossly undervalued.
This is why I saw through all the negativity and pessimism, and I held onto my belief that Cineplex stock would not stay low for too long. Of course, it has been extremely hard to time the recovery, but today, more than a year later, I believe it’s really happening in full force.
Cineplex’s latest update provides hope
After a difficult and bumpy few years, Cineplex stock has performed better this year than in recent memory. In fact, CGX stock has rallied 32% year-to-date, and it is almost 125% higher than its 2020 lows.
The recovery has not been quick. It has unfolded slowly and gradually, but in August, we got an update from Cineplex that I believe signals a pivotal point in the company’s story. I’m referring to the fact that box office revenue in August was $67.2 million, 119% of 2019 sales (pre-pandemic levels).
Furthermore, I will note that the summer as a whole was a very successful one for Cineplex. So this is not just a one-month phenomenon. In June, box office revenue was 90% of 2019 levels, and in July it was 94%. With the movie content back, records are being broken and it is becoming increasingly clear that this business is just as good, if not better than pre-pandemic levels.
All of this questions the belief that some investors still hold that the movie theatre business is dying. It essentially confirms that Cineplex is recovering.
Cineplex valuation
As you know, the recovery has been slow going and there have been no guarantees. Today, Cineplex stock is not pricing in much good news, which is good for investors who are looking to add a position. Trading at a mere 12 times 2025 expected earnings, it’s definitely a value stock.
Before the pandemic, Cineplex was touted as an ideal, reliable dividend payor. This was because of the steady, reliable cash flows generated by this business. Investors bought into this idea and valued the stock at almost $50 per share at its highs.
According to management, if and when Cineplex can achieve 75% to 80% of pre-pandemic attendance levels, this would make the reintroduction of the dividend not only possible, but very likely. This is becoming more and more likely, as attendance levels and box office revenue recover.
The bottom line
Looking ahead, Cineplex stock is well positioned. It has held up well in past recessions; it’s trading at a very inexpensive valuation, and the business is more diversified than ever.
Finally, the latest update from Cineplex highlights the fact that the company is on the road to recovery. Cineplex stock is not pricing in much in the way of good news and is highly undervalued. This makes it a highly attractive buy, in my view.
