The tariff wars and economic uncertainty have brought a lot of volatility to the market. This uncertainty has created an environment of fear for investors. Yet, some things have remained the same. In my view, the best contrarian play today is one of them.
Without further ado, here’s why Cineplex Inc. (TSX:CGX) is one of the smartest contrarian plays to buy now.
Cineplex is cheap
First of all, as we would expect with contrarian stocks, Cineplex stock is cheap. This is a function of the fact that investors are skeptical. Therefore, they probably do not believe the analyst estimates that are out there. As a result, Cineplex stock is trading at a very low 11 times next year’s expected earnings. Also, it’s trading at a mere nine times expected earnings in 2027.
While Cineplex has struggled a lot since the pandemic, there are many signs that point to a recovery for this entertainment company. Let’s review this in the next section.
The movie exhibition is not dead
Contrary to what many believe, although not as high as it used to be, the movie exhibition business is still seeing good demand. In the first quarter of 2025, box office revenue came in at 101.9 million. This compares to $156.5 million in the first quarter of 2019. For the full year 2024, box office revenue came in at $562.2 million versus $705.5 million in 2019. This represents 65% and 80% of pre-pandemic levels, respectively.
Importantly, Cineplex has fully recovered the first quarter box office shortfall on a year-to-date basis. In fact, it currently stands at 105% of last year’s box office. With strong content expected for the remainder of the year, so the company is expecting a strong box office performance in 2025.
So, while we are clearly in a lower attendance world than in the pre-pandemic years, things are being done to take advantage of the premier Canadian positioning that Cineplex has in the exhibition industry. For example, new movie watching experiences such as VIP and 4-dx theatres are meant to counter weakness and draw viewers in.
VIP cinemas offer in-seat service and comfortable, reclining seats. 4-dx is a multi-sensory experience that immerses us through motion, vibration, water, wind, and lighting effects. These experiences have allowed Cineplex to charge more for a movie, thusly increasing its margins.
Cineplex’s diversification strategy
Beyond the movie exhibition segment, Cineplex is also involved in other businesses. They include the gaming industry, as well as the media business. In fact, in the company’s first quarter of 2025, these businesses demonstrated strength that served to offset weakness in the movie exhibition business.
The media segment (11% of revenue) posted a 32.9% increase in revenue, as media spending has begun to recover after a difficult period. And looking ahead, the growth in this segment is likely to continue. In fact, capacity utilization in this business remains quite low, so there’s nice upside to be had.
The location-based entertainment business (14% of revenue), offers multiple entertainment options under one roof. In this segment, revenues grew 10.5% to $38.1 million. This was a quarterly record positively impacted by two new locations that opened up during the quarter. This segment offers a business that offers high margin revenue and a more predictable operating environment given that it’s not dependent on content.
The bottom line
In conclusion, it is my belief that Cineplex stock is underappreciated and undervalued – and an excellent contrarian play. It has a dominant market share of roughly 80% in the movie exhibition industry in Canada, something that investors are undervaluing.
Also, its location-based entertainment venues offer an entertainment experience that the younger generations can enjoy. Finally, Cineplex is taking advantage of its position in the entertainment industry to capture the attention of advertisers who are looking for access to large audiences for their ads.
