Retirees: Is Cineplex Stock a Risky Buy?

As the pandemic and the writer’s strike have faded into the background, Cineplex stock is slowly recovering.

Karen Thomas, MSc, CFA

Karen is a stock market enthusiast focused on uncovering those stocks that she believes the market has mispriced. She does this through fundamental and quantitative analysis of companies and their industries, as well as a study of future opportunities and trends. She holds a Masters degree in Finance, the CFA designation, and has over 20 years of experience in the investment management industry. Having worked at a major pension fund, as well as two leading mutual fund firms as an analyst and portfolio manager, she has solid investing expertise which she aims to share with her readers.

Published January 27, 2025 4:10 pm EST

| More on: CGX

Let’s just start this article off with this simple fact – there is no stock that is without risk. Even the ones that we thought would never fall, have fallen. Having said that, I would like to talk about Cineplex Inc. (TSX:CGX). Is Cineplex stock too risky for you or is it just the right stock to add to your retirement portfolio?

Let’s take a look.

Hand Protecting Senior Couple — Source: Getty Images

Cineplex: A history and reflection

I would like to take you back a few years ago. I’m talking about when Cineplex stock was trading around $50 and was known for being a top dividend stock. Well, since then, a lot has changed. For example, streaming has become increasingly popular with many choices for entertainment in our homes. That’s definitely been a challenge.

But a lot has not changed. Movie-watchers still venture outside of their homes for a night at the movie theatre. As we can see from the recovery in attendance levels since the pandemic, Cineplex theatres are reflecting this strong demand. In fact, the end of the pandemic and the writer’s strike have set this in motion. For example, Cineplex reported box office revenue of $64.8 million in December 2024. This represented 125% of December 2023 revenue and 86% of pre-pandemic revenue.

Cineplex’s very business has changed through all this. This change can be seen in the company’s diversification within the movie business, as well as in its increasing involvement in the gaming/arcade business. Within the movie business, Cineplex has expanded its supply of movies and has an increasing slate of international movies. Also, premium theatre experiences such as VIP are not only very popular amongst movie-goers, but also represent higher margin revenue for Cineplex. It is a very different company today.

Is a dividend coming?

Cineplex’s business is one that has historically been relatively stable, with a nice defensive characteristic to it. When times are tough, consumers reign in their discretionary spending. But the cost of entertainment at Cineplex is lower relative to other forms of entertainment. Therefore, it would not be hit as hard. In fact, recessions have often increased Cineplex’s business, as people need a place to escape the realities of life.

So, the criteria for Cineplex to re-instate its dividend are that the company’s balance sheet is in good shape and attendance levels are at 75% to 80% of those of 2019. Today, the balance sheet is much-improved and in good shape. Also, in 2023, attendance levels came in at 72% of 2019 levels. And 2024 has seen even better attendance versus last year. As the movie slate continues to improve, attendance levels will likely continue to climb. In my view, we should expect a dividend from Cineplex in the foreseeable future.

The bottom line

So retirees, I would be confidant in Cineplex stock’s ability to provide you with dividends (in my view pretty soon) as well as healthy capital gains. Like I said at the beginning of this article, there is of course always risk. However, with Cineplex’s positive outlook and low valuation of a mere 12 times this year’s estimated earnings, the risk/reward profile of the stock looks very attractive.