Shares of embattled Canadian cinema operators Cineplex Inc. (TSX:CGX) have absolutely cratered during the stock market selloff.
Investors seem to now be fully pricing in the reality that Cineplex will not be acquired by U.K. cinema giant Cineworld, as was previously planned. Factors contributing to the acquisition not moving forward include industry-wide concerns, plunging share prices in the sector and the broader stock markets, for that matter.
In a global pandemic scenario, the last business investors should be thinking about investing in are cinemas, places where hundreds of patrons are crammed into rooms for hours at a time.
Cineplex, like many of its peers, have announced a temporary closure of its network of locations. One must wonder what effect this will have on earnings and the overall sector. Movie releases are being pushed back as the movie industry transitions into a "Netflix or hibernate" type of scenario. This situation is just terrible for companies like Cineplex.
The shift away from a mass production business model to a home entertainment business model for studios is underway. But I believe the coronavirus pandemic will speed up the switch most viewers will eventually make anyway.
I really do believe that Cineplex could be the greatest short play for the next five years, as I don't see a scenario in which the movie theatre business can compete with high-quality streaming options in the long run.
Invest wisely my friends.
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