I’ve been awaiting a comeback from Cineplex (TSX:CGX) for about a year now. It seems like things are falling into place, yet Cineplex’s stock price continues to hover below $10 — it’s trading at $7.76 at the time of writing. Is there any hope?
Let’s explore.
Cineplex’s box office results up big
In the last few years, two things hit Cineplex’s box office results. The first was the pandemic, which were a devastating blow. The second one happened just as the pandemic was ending — the writer’s strike. This seriously hit content and box office numbers alike.
Today, however, is a new world, and March 2024 box office numbers reflect this. Box office revenue increased 46% to $59.2 million, 95% of 2019’s pre-pandemic levels and 146% of 2023’s levels. This stellar performance was the result of good movie content, such as Dune: Part 2, Godzilla x Kong, and Kung Fu Panda 4.
Almost half of box office revenues were from premium experiences like IMAX and VIP. These revenues are higher-margin revenues.
Cineplex stock is very cheap
Despite all of this, Cineplex stock’s valuation remains in depressed, ultra-undervalued territory. It’s trading at 18 times this year’s consensus earnings per share (EPS) expectation and nine times 2025’s consensus EPS expectation. It actually suggests that Cineplex’s earnings will not recover back to pre-pandemic levels.
But this, as we have seen, is not true. First of all, March’s box office revenue was 146% of pre-pandemic levels. Also, attendance levels confirm that the movie-going experience is still very much in demand. Finally, Cineplex is, more than ever, not just a movie exhibition company. Its recreation, gaming, and media businesses are important parts of Cineplex, and they offer diversification.
Regardless, recall that before the pandemic, Cineplex was touted as an ideal, reliable dividend payor. This was because of its steady, reliable cash flows generated. If and when Cineplex can achieve 75% to 80% of pre-pandemic attendance levels, this would make the reintroduction of the dividend not only possible but very likely. This is becoming more and more likely as attendance levels recover.
Q1 report coming in May
On May 8, Cineplex is expected to report its first-quarter 2024 result. We’ve already gotten a glimpse of it, with the box office revenue numbers released. At this time, Cineplex is expected to report a net loss of $0.50 per share compared to the $0.48 loss reported last year.
But beyond the bottom line, the film slate for the rest of the year is also a key consideration. According to management, it’s looking good, with blockbuster hits such as The Fall Guy, Inside Out 2, and Garfield, to name just a few. As we’ve seen in the March box office numbers, if Cineplex can secure a good movie lineup, moviegoers will show up.
The bottom line
It’s easy to be negative about Cineplex stock right now. Investors’ predominant sentiment toward Cineplex is negative.
However, the stock is really cheap, and revenues and earnings are likely going to improve significantly this year. In short, there is definitely a lot of hope for Cineplex’s stock price.
