Cineplex Stock: Should You Buy in 2021?

Since the COVID-19 pandemic began, the global economy has taken a hard hit. While most companies suffered massively, Cineplex (TSX:CGX) has been one of the hardest hit stocks by far. Because of lockdown and social distancing rules, Cineplex has effectively been shut down for more than 16 months. Expectedly, the stock price has dropped and many investors have been wondering if now is a good time to buy Cineplex stock. If you are wondering the same, you’ve come to the right place. 

Here are some important facts about Cineplex stock

In late 2019, Cineplex stock was expected to be taken private. After all, it was one of Canada’s strongest companies before the pandemic. So the fact that someone wanted to take it over, came as no surprise to anyone. However, as soon as the unprecedented chaos of the COVID-19 pandemic hit Canada and everything went under lockdown, the deal fell through and Cineplex went on to lose a drastic amount of value. After all, how can a movie theatre firm earn any money if movie theatres are closed to the public? Things obviously went from bad to worse before they could become better. Since the market pullback of 2020, Cineplex has consistently been one of the cheapest stocks in Canada. A lot of investment experts have drawn parallels between Cineplex and Air Canada stocks. Both of these companies were doing very well before the pandemic and have been two of the hardest hit companies because of the pandemic. However, among the two, Cineplex is definitely better for taking a long term position. Compared to Air Canada, Cineplex has the ability to save more costs and hasn’t lost nearly as much value.

As the stock has started recovering well recently, many investors are curious to know about the merits of investing in Cineplex.

Is Cineplex stock a good recovery pick?

As more and more people get vaccinated, things are slowly going to get back to normal. One of the things that will open up are movie theatres. And they are expected to be overwhelmed because of a tonne of pent-up demand from consumers to see movies after all this time. Aside from its movie theatres, Cineplex is also expected to pick its business back up in institutions such as Playdium and The Rec Room.

Cineplex’s digital advertising business is also expected to witness recovery. These digital ads are placed in locations with high foot traffic, such as banks, malls, and quick-service restaurants. Most of these institutions were shut/operating with restrictions for over a year. Consequently, the digital advertising business of Cineplex also suffered. As these institutions open up, Cineplex’s digital advertising segment, along with all of its other businesses, should be able to climb up the steps of recovery quite fast.

How much will it cost to buy Cineplex stock?

As per the publication of this post, Cineplex stock is priced slightly below $16. This is less than half the price at which Cineplex stock traded before the pandemic. It’ll be unrealistic to expect it to bounce back to pre pandemic prices instantaneously, but the first has definitely displayed a potential to grow towards that in the future. Let’s not forget, Cineplex generated over $1.5 billion in annual revenue before the pandemic. It also generated $150 million in cash flow. Looking at this performance, it’s easy to see why expecting Cineplex to recover is a practical train of thought. However, Cineplex did suffer from having weak margins before the pandemic, so there is some justified skepticism. Because of that, a lot of analysts aren’t approaching it in a bullish way yet. The average target price as of now is just a tad bit over $13. 

Cineplex Stock: Conclusion

While there is no doubt about the recovery potential of Cineplex (it’s definitely far lower in risk compared to other recovery stocks like Air Canada), there is still a considerable amount of risk involved. For Cineplex to recover any further, the market will probably need to see a more certain sign of recovery. Yes, Cineplex is a good stock to buy right now, but there are quite a few Canadian stocks aside from it that seem like a wiser choice today.

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