Retail investors have jumped strategically on various cinema stocks over the past two years. The trend has capitalized on the surge seen in pandemic rebound plays, as well as the meme stock mania. Other factors, such as an improved movie slate, are considerations for speculators and investors looking at this sector.
Thus, the recent releases of the Barbie movie, as well as Chris Nolan’s Oppenheimer, have provided investors with the latest catalyst to look to for this sector – the so-called ‘Barbieheimer’ blockbuster weekend.
And what a weekend it was! This recent highest-grossing weekend was a was certainly a pleaser for those bullish on movie theater stocks.
So, does this mean it’s all roses moving forward for the cinema sector? I’m not so sure.
AMC Entertainment (AMC)
AMC Entertainment’s (NYSE:AMC) plans to convert their AMC Preferred Equity Units into AMC stock have been halted by Vice Chancellor Morgan Zurn. This move is causing a stir among investors.
In a message to shareholders, CEO Adam Aron emphasized the importance of acquiring capital in order to safeguard the financial stability of the business. Despite this development, AMC also announced it will report its upcoming Q2 earnings report on August 8 after market close.
Additionally, AMC stock surged 67% after a merger of AMC’s Preferred Stock with its common issue was denied. This seems positive for common shareholders, as the merger could have diluted the stock. On the other side, danger may lurk for the business’ success if the two assets cannot be reconciled. It faces upcoming bond expirations and a need to refinance.
AMC has dropped its variable pricing plan and faces difficulties in paying off its debts. To cover the funding gap, the company has issued new shares and reduced investments in theater renovations. However, this approach is unsustainable. And with $496 million in cash-on-hand and upcoming bond maturities, AMC’s liquidity may deplete by 2024 unless it issues more stock. The lack of clear guidance from Delaware courts adds to the challenges.
Cinemark Holdings (CNK)
Cinemark Holdings (NYSE:CNK) incurred losses in the last twelve months, making revenue and its growth a significant focus for the market. Companies without profits are expected to show steady revenue growth.
But during the past five years, Cinemark has seen a 14% yearly drop in sales, which has caused a 9% yearly drop in the price of its shares. This performance is unappealing and indicates a risky investment. Careful research is advised before considering this company as an investment option.
CNK is a business with a presence in the United States and international markets that focuses on movie screenings. But it has consistently missed EPS estimates in the previous four quarters. The stock, which closed at $12.82 in the most recent trading period, is down 16.3% over the preceding year.
The returns on capital at Cinemark Holdings have declined over the past five years, dropping from 10% to a lower level. Furthermore, throughout this time the capital used in the company has stayed mostly stable. Such trends suggest that the company may not be shrinking, but it could be facing competition and margin pressure, indicating a more mature stage. Given these circumstances, the potential for significant growth or becoming a multi-bagger seems unlikely if the current trends persist.
Imax (IMAX)
IMAX (NYSE:IMAX) impressed investors with its robust Q2 results, leading its stock to soar over 8% while the S&P 500 declined.
With earnings of $98 million, a 32% increase over the identical timeframe last year, IMAX achieved strong Q2 statistics. Additionally, the business’s non-GAAP net income increased from $3.9 million to $14.4 million ($0.26 per share), above the projections of analysts. IMAX attributed its strong performance to the growing preference for the big-screen experience and its global expansion efforts to fuel growth.
However, IMAX’s Return on Equity (ROE) is notably weak, falling below the industry average of 11%. This could be a contributing factor to the 26% net income decline observed over the past five years. The company’s decision to not pay dividends yet retain all profits, despite lack of earnings growth, raises questions about potential growth hindrances. IMAX has faced headwinds, which may be affecting its performance.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.