As the majority of stocks were recovering from the pandemic throughout 2021 and 2022, Cineplex (TSX:CGX) stock was one of the few companies that were still significantly impacted.
First off, restrictions on indoor gatherings significantly impacted its business for over a year. Then, even after those restrictions were lifted, a lack of content due to the production shutdowns in Hollywood played another role in delaying its recovery.
By 2023, though, both management for the company and investors alike were excited as most anticipated a significant recovery in both sales as well as profitability.
The pandemic was now in the rearview, and dozens of blockbuster films are set to be released this year.
Despite the potential for a significant recovery this year, a higher-risk market environment made it difficult for the stock to see a sustained rally to start the year.
Then, the writers’ strike was another hit to any momentum Cineplex was building. The strike won’t impact any of its operations this year or the slate of films scheduled to be released. Nonetheless, there was concern that a prolonged shutdown could impact Cineplex stock in the future, similar to the production delay impacts after the pandemic.
Now, however, with the strike being resolved, Cineplex has a tonne of potential for a significant rally. In the last month, for example, it has already gained 9.1% at the same time that uncertainty has been picking up, while the TSX has fallen by over 7%.
Yet even with this minor rally, Cineplex stock is trading unbelievably cheap. So let’s look at why exactly it’s one of the top stocks to buy in October.
Why is Cineplex one of the best stocks to buy in October?
Although pandemic restrictions were lifted early on in 2022, as I mentioned before, a lack of high-quality and compelling content impacted Cineplex’s ability to realize a full recovery.
For comparison, in 2019, the last year before the pandemic, Cineplex stock generated revenue of roughly $1.7 billion. Meanwhile, last year the stock generated just $1.3 billion, approximately 76% of what it did in 2019.
That’s far better than the $418 million and $657 million it did in 2020 and 2021, respectively. However, still not enough to generate a profit as normalized earnings per share (EPS) were -$0.10 last year.
This year, though, analysts anticipate Cineplex will generate sales of roughly $1.6 billion, just shy of what it did in 2019. Furthermore, Cineplex is estimated to generate normalized EPS of $1.51.
So with the stock trading at just over $9 today, it’s priced at roughly 6.1 times this year’s earnings, an unbelievably cheap valuation.
Furthermore, with its recovery this year, Cineplex stock is expected to generate earnings before interest, taxes, depreciation and amortization (EBITDA) of roughly $370 million. Not to mention, analysts expect that will grow to more than $400 million next year.
And today, with Cineplex’s enterprise value (EV) at only $2.5 billion, it trades at a forward EV/EBITDA ratio of 6.4 times. That’s well below its five-year average EV/EBITDA ratio leading up to the pandemic of 11.2 times.
So with Cineplex stock trading ultra-cheap, well below its average analyst target price of $13.75 in the midst of a significant recovery, there’s no question it’s one of the best stocks you can buy in October.
