No doubt some of us think back fondly to the days of munching overpriced popcorn in a room filled with strangers, but don’t let that creep into your investment strategy, says Paul Harris, who thinks Cineplex (Cineplex Stock Quote, Chart, News, Analysts, Financials TSX:CGX) is still a no-go zone for your money.
Canadian theatre and entertainment company Cineplex hit a 52-week high on Thursday as the market seems to have taken a shine to CGX in the wake of easing COVID restrictions across the country.
Quebec will get its second VIP Cinema which opens in Montreal on Friday, an attempt by the movie chain to lure in patrons with plush seats and dining service while you watch, albeit at reduced seating capacities as per provincial COVID regulations. BC opened its doors to indoor film screening this week after a half-year in the dark, as vaccinations have brought down COVID case counts and reignited the promise of a relatively restriction-free summer.
But while the movie-going public may be celebrating, investors should avert their eyes, says Harris, partner at Harris Douglas Asset Management, who points to the veritable elephant in the room in the form of streaming services like Netflix and Disney+.
“The difficulty with Cineplex is we’re still in this pandemic. They did a great job prior to that of bringing a lot of people in and there were a lot of blockbuster movies and they thought about it as more of an experience and all these other things,” said Harris, speaking on BNN Bloomberg on Thursday.
“And that’s still there, but I think it’s going to get harder for people to come to the movie theatres, and a lot more people on the streaming side have moved some of their stuff onto their streaming products like Disney does where you can pay a premium to get, you know, Cruella today,” he said.
So, I think that’s what’s happening,” Harris said.
Neither is the reopening of cinemas an easy win for Cineplex, Harris says, as pandemic restrictions of some form look to be in place for a while yet, with no indication of when (or if) they will lift down the road.
“I think it’s going to be a tougher time to for people to go back to the traditional theatre over the next little while because it’s not clear about how it all works. It’s not clear if you have to be vaccinated or if you have to wear a mask or not. And those are not good experiences in having to wear a mask in the movie theatre for two and a half hours,” Harris said.
“I think that’s the trouble with these [cinema] stocks. It’s nice to say, oh, they’re open again and you’re going to have young kids going to movie theatres to have parties there and so on. But those things are going to take a long time I think to come back,” Harris said.
Tell that to the hordes of retail investors backing US cinema chain AMC Entertainment (NYSE:AMC), whose share price has been a rocket over the past few weeks. While Reddit-inspired trades in names like GameStop, Bed Bath and Beyond and even Canadian tech lovable loser BlackBerry (TSX:BB) have stalled more recently, the same hasn’t been the case so far for AMC, which has gone from US$10 to north of US$60 and has shown no signs of letting up, so far this week having put on another 30 per cent.
Up til now, Cineplex seems to have been spared the social media/meme stock highs and lows, but even so, Harris says there are much better places to park your investment dollars.
“AMC became a meme stock but I do think that it’s going to take a lot longer than you think and I think it’s going to be a difficult environment over the next little while [for cinema companies],” Harris said.
“Black Widow, which was put off, is coming to theatres I think sometime in the next month or so, and it will be interesting to see what how it does in the movie theatres, a big Marvel movie, and how fast they decide to move it to Disney+ right and let people pay an extra $10 or whatever to get it,” he said.
“I think that’s the bigger issue, and I wouldn’t want to own [Cineplex] here, to be honest. I would wait and I would think you can put your money in other places and do better,” Harris said.
Cineplex finished the 2020 pandemic year with revenue down a full 88 per cent compared to 2019 to $52.5 million and a net loss of $230.4 million compared to net income of $3.5 million for 2019. Prior to the pandemic, the company had managed to grow its revenue in 2019 by 3.6 per cent compared to 2018’s numbers.
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