The past several years have been transformational for entertainment stocks such as Cineplex (TSX:CGX). But now that the pandemic has passed and the entire market is experiencing volatility, could it be a good time to buy Cineplex?
Let’s attempt to answer that question
The problems with Cineplex go back well before the pandemic
First, let’s take a moment to recognize the issues that Cineplex faced, even well before the pandemic changed everything. Cineplex’s core operating model can be put rather simply as the movie-and-popcorn business.
In short, Cineplex charges an admission to see something exclusive, and then offers its patrons concessions, while making a handsome profit. That model worked well until device streaming and releases directly to streaming services started to chew away at that business.
That all but removed the extended exclusivity factor that Cineplex enjoyed. New releases rarely remain exclusive to big screens for longer than 40 days, instead opting to jump sooner to streaming platforms.
This means that would-be patrons can wait out the added (and rising) cost of a movie ticket for a month or two and then stream it. Adding to those woes is the cost of those monthly streaming services. Despite several price increases over the past years, a month of streaming is still lower than a single movie ticket.
When the pandemic hit, Cineplex, like nearly every other non-essential business, was forced to close. This resulted in a substantial loss of revenue, leaving Cineplex with a giant hole to dig out from.
Fast-forward to this year, and Cineplex’s numbers have improved. The number of patrons looking to watch the latest Hollywood blockbuster (as well as the quality of those releases) has increased.
But is that enough to make this a good time to buy Cineplex?
How is Cineplex doing now?
Cineplex is set to report results for the first fiscal quarter of 2025 in a few weeks. Until then, we can look back at how the company fared during the fourth quarter update back in February.
In that quarter, Cineplex reported $362.7 million in revenue, reflecting a 15.1% increase over the same period last year. Overall the company reported a net income of $3.3 million. This was a stark improvement over the $9 million net loss reported in the prior year.
Cineplex also noted that media revenue growth over the prior period surged 25.7%.
Box office results from earlier this year also showcase that the company is on track to surpass 2024 box office revenues. In February of this year, the company reported box office revenues of 124% of the 2024 number.
Those numbers are set to soar further this summer as we move into the blockbuster season. Specifically, there are more long-awaited and much-hyped movies coming to screens this summer. That long list includes the Thunderbolts*, Fantastic Four and Mission: Impossible – The Final Reckoning, just to name a few.
In short, Cineplex is improving, and it has a full slate of Hollywood’s best hitting screens this summer.
So then, is it a good time to buy Cineplex?
Prospective investors should note that every single stock carries some risk. Furthermore, there are no exceptions to that, even for the most defensive of stocks. When it comes to Cineplex, that risk is apparent as mentioned above.
But Cineplex continues to improve in 2025, despite being measured against what happened in 2020. Concurrently, the entire market is experiencing a period of volatility.
To put it another way, the market is up just over 12% over the trailing 12-month period. Incredibly, that’s on par with Cineplex’s performance over that same period.
In my opinion, investors with an appetite for risk should consider a small position in Cineplex as part of a well-diversified portfolio.
