Cineplex (C:CGX) leveled up to 82.30% year-to-date as new investors wait to jump on a fair price in the rebound speculation mix. The stock’s current price of C$15.86 is up more than C$2 over the past month, but it is still down half its pre-pandemic price. Although investors do not expect a return to C$33 in the next quarter, there is an upside to the stock.
Cineplex was long considered a high-value stock for its industry, welcoming over 70 million guests annually, pre-COVID-19.
Cineplex is far from a tech stock and will remain dependent on in-person sales in locations where consumers enjoy entertainment.
The company relies on revenue from digital content, its media company, an online e-sports platform, and location-based entertainment such as its 165 theatres across Canada. It also has begun to focus more aggressively on entertainment partnerships designed to attract new customers. (See Cineplex stock chart on TipRanks)
Investors Banking on Return to Normalcy
The scope of pandemic’s negative impact on the company is still unknown at this point. As things begin to open up in Canada and restrictions ease, investors believe that a return to leisure activities like watching a non-streaming home movie in a theatre will help catapult the stock to a 50% increase.
To see a significant uptick in the number of people entering a movie theatre, movie goers must feel secure in a crowded theater. The reopening is underway and many businesses throughout Canada have felt the rush again, but unfortunately Cineplex is not there yet.
May Add Billions to Balance Sheet
A C$2.18 billion lawsuit filed against Cineworld by Cineplex on July 3, 2020 is slated to wrap up this year. If the Ontario Superior Court of Justice awards Cineplex its lion’s share, investors might see the stock leap as awaited.
“This settlement would greatly ease cash burns from the shutdown,” President and CEO Ellis Jacob said. “During the first quarter, we remained prudent in managing costs and reported an average monthly cash burn of $26.9 million. Key liquidity actions included the receipt of $57 million for the completed sale-leaseback of our head office in Toronto and $250 million in the form of Second Lien Secured Notes,” said Jacob.
The company’s resilient tone has accentuated some of its newer ventures like Canada’s first Playdium location of 30,000 square feet of entertainment, and a long-term arrangement with Torstar Corporation. However, with a 96.1% decrease in theatre attendance, doom and gloom has been a constant feature for Cineplex, and will likely remain prevalent until the reopening of Canada's entertainment starts.
What Investors Can Expect in 2021?
Long-term investors who did not jump ship starting March 2020 are holding this stock in anticipation of the rollout of new entertainment industry guidelines, hoping that the guidelines will favor Cineplex’s business model. One key component to watch is how the company will compete against Netflix and Amazon Prime, as movies increasingly will go straight to streaming services.
Still considered low-risk, this is an interesting recovery stock to buy. Entertainment venues like Playdium and The Rec Room will eventually return to a normal and pre-COVID volume of entertainment guests.
Additionally, its digital advertising division and other businesses will continue to carry Cineplex as the return to movie theaters is underway across Canada.
According to TipRanks’ analyst rating, CGX stock comes as a Hold. Of the four analysts, there are 1 Buy and 3 Holds.
Part of the reason some investors remain optimistic on Cineplex’s opportunity to bounce back is its leadership. The company’s CEO, Ellis Jacob, remains encouraged by recent global box office results and the strong film release schedule.
Investors may have a fear of missing out on this stock’s recovery. When the stock price begins to rise, investors are likely to scramble to catch it before the stock returns to its pre-pandemic price point.
Disclosure: Lukas Brenowitz held no position in any of the stocks mentioned in this article at the time of publication.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.