Breaking News
Investing Pro 0
Ad-Free Version. Upgrade your experience. Save up to 40% More details

Should You Buy or Sell Cineplex (TSX:CGX)?

Stock MarketsSep 14, 2021 18:15
Saved. See Saved Items.
This article has already been saved in your Saved Items
Should You Buy or Sell Cineplex (TSX:CGX)?

There are few investments on the market today that have polarized investors as much as Cineplex (TSX:CGX). With a potential end now in sight, investors are considering whether it’s time to buy or sell Cineplex. Let’s try to answer that question.

The case to buy Cineplex stock was decimated during the pandemic. The stock still trades at a significant discount compared to its pre-pandemic price. During that time, Cineplex has slashed costs and eliminated its dividend — all to remain afloat.

Fortunately, the pandemic appears to be ending, and businesses are open. Some parts of the country require proof of vaccination for entry. As that rollout and recovery continue, prospective investors can expect Cineplex’s revenue to soar.

Another point that few investors realize is that Cineplex is more than just its movie-popcorn business. While that segment is responsible for the bulk of Cineplex’s revenues, there are other areas that are growing in importance.

Cineplex’s Rec Room concept is just one such example. The large, multi-configurable entertainment venues can host any type of event, offer live entertainment, games, and catering. Pre-pandemic, the Rec Room was a growing contributor to Cineplex’s earnings. Cineplex was also rapidly expanding its Rec Room presence across the country. As the pandemic ends, that growth could continue.

But is that enough to warrant a buy? Let’s now look at the other argument to determine whether to buy or sell Cineplex.

The case to sell The pandemic was tough on every business. Some businesses learned to cope, whereas others are stuck with business models that are still reliant on people gathering in enclosed spaces. Cineplex fits into that latter category.

To be fair, Cineplex has tried to innovate in recent years, with some success. The arguments mentioned above are all valid points that could help the company post a profit someday. There are two problems with that.

First, Cineplex needs to aim higher. The success of Cineplex’s movie-and-popcorn business is tied to two completely different events. We have the proliferation of streaming services, and then we also have the COVID-19 pandemic.

While the latter will end (hopefully soon), there’s still a very personal decision on whether would-be customers will return to theatres. After living over a year with limited social contact, will we be comfortable sitting in an enclosed place with others? Even if the pandemic ended today, it could be weeks or months before people feel comfortable to venture into a theatre, if ever.

The alternative to that is my first point. Streaming services were a major threat to the traditional movie-and-popcorn business well before the pandemic began. If anything, the pandemic only accelerated the transition towards a home-streaming environment. For less than a price of a single admission, subscribers get nearly unlimited access to thousands of movies that do not run on a fixed schedule.

To make matters worse for Cineplex, there are now multiple streaming service companies that have established studios to film and distribute new films directly to streaming services. Unlike the direct-to-DVD model this replaces, these films are attracting top talent, have huge budgets, and can reach a huge audience.

That doesn’t sound too promising for Cineplex investors.

Buy or sell Cineplex? Some final thoughts No investment is without risk. That’s something that every investor painfully learned during the onset of the pandemic last year. Fortunately, the market has roared back to life since then, but there are still stocks that are struggling. Cineplex is one such stock.

Unfortunately, Cineplex’s fortunes are not only tied to the end of the pandemic but are also linked to changing consumer tastes. Yes, people will return to the theatres to watch the best that Hollywood has to offer. But there’s a growing number of people that will opt to stream movies from home. Until Cineplex can diversify itself away from being overly reliant on the declining theatre model, the investment is just too risky, despite it being perceived as undervalued.

In my opinion, there are far better options on the market for investors to consider at present. Even better, many of those other stocks can generate a healthy income stream, which is something Cineplex stopped doing last year.

The post Should You Buy or Sell Cineplex (TSX:CGX)? appeared first on The Motley Fool Canada.

Fool contributor Demetris Afxentiou has no position in any of the stocks mentioned. The Motley Fool recommends CINEPLEX INC.

This Article Was First Published on The Motley Fool

Should You Buy or Sell Cineplex (TSX:CGX)?

Related Articles

Asian shares stabilise but global growth fears nag
Asian shares stabilise but global growth fears nag By Reuters - Sep 16, 2021

By Alun John HONG KONG (Reuters) - Asian shares steadied in early trading on Friday after losses earlier in the week, but China jitters and global growth concerns weighed on...

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email