Cineplex (TSX:CGX) stock and its investors have waited years to recover. After the stock was severely impacted by the pandemic, it sold off considerably and has been ultra-cheap for years now.
However, by the start of this year, it appeared as though 2023 could be the year that Cineplex stock would finally recover. Notably, there are no longer indoor capacity restrictions and production in Hollywood has fully recovered, with several blockbuster films set to be released this year.
With the recent start of the writers’ strike, though, and the immediate impact it has already had on the entertainment industry, particularly TV shows, some investors are wondering if Cineplex stock could be impacted and, ultimately, if its recovery could be derailed.
Is Cineplex stock still worth buying despite the ongoing writers’ strike?
Although the writers’ strike is having a significant impact on the entertainment industry and is already beginning to have significant impacts on the production of TV shows, its impact on Cineplex stock should remain minimal, at least in the short term.
Many movie scripts are written years in advance of the production of movies. Besides, studios have historically stockpiled scripts ahead of potential writers’ strikes.
Furthermore, the movies that are already slated to be released this year, in most cases, are already finished shooting and are now in post-production. Therefore, in the near term, Cineplex stock should continue to see a rapid and significant recovery in its sales, leading to its profitability for the first time since the pandemic. More moviegoers could potentially push the share price much higher than where it trades today.
It’s also worth pointing out that the last writers’ strike, from late 2007 to early 2008, lasted for 100 days and had a very limited impact on the film industry. Furthermore, the films that were impacted were typically delayed in the following years due to the significant amount of time it takes to create movies.
What can we expect from the entertainment giant in 2023?
Since the majority of movies being released this year have already been announced and several blockbusters are due to be released, 2023 looks like the year that Cineplex stock could finally see a rapid recovery in its operations.
Analysts are predicting a roughly 22% increase in sales from 2022, to just over $1.5 billion, or 93% of sales in the year prior to the pandemic. Furthermore, Cineplex is estimated to be profitable for the first time since the pandemic, with analysts estimating it can generate $0.57 in earnings per share (EPS.)
It’s also worth noting that the estimates for its EPS both this and next year have actually been revised higher in recent weeks, with this year’s estimates increasing from $0.50 at the start of the year.
Therefore, with Cineplex stock trading at just $8.75 today, it trades at a price-to-2023 earnings ratio of 15.4 times and just 7.1 times its expected earnings in 2024.
In addition, with its earnings before interest, taxes, depreciation and amortization (EBITDA) expected to jump more than 23% both this year and in 2024, Cineplex currently trades at a forward enterprise value (EV)-to-EBITDA ratio of 6.8 times.
Both of these ratios are much cheaper than Cineplex stock has historically traded at. For example, in the five years leading up to 2020, Cineplex had an average forward EV-to-EBITDA ratio of 11.2 times. Furthermore, its average forward P/E ratio over that stretch was 26.3 times.
Therefore, while you can buy Cineplex stock as it continues to trade undervalued, it’s certainly one of the top Canadian stocks to consider adding to your portfolio today.
