A stock that continues to fall precipitously, Canadian cinema and entertainment company Cineplex Inc. (TSX:CGX) has proven to be a great short play for investors who have been as bearish as myself on the overall theatre business in recent years.
I have been touting Cineplex as a great short option for investors looking for ways to make money when stocks decline in value. In this article, I am going to discuss why my view remains unchanged for this stock.
The movie theatre business is one which has been in an obvious (at least to me) secular decline for years as streaming and home entertainment options have increased both in quality as well as quantity of content.
A secular shift/replacement away from cinema business toward streaming services, I argue, has only been accelerated by this COVID-19 pandemic. As consumers continue to become more comfortable with such home entertainment options, the cash flow strain on companies like Cineplex is likely to put pressure on the ability of such chains to make payments on their massive debt loads.
The potential of this COVID pandemic to turn potential liquidity issues into solvency issues is thus very real.
The Cineworld takeover offer of Cineplex for $34 has been taken off the table, and a long legal battle is set to ensue. With Cineplex’s stock now trading around the $10/share level, investors can see just how much confidence a deal will go through is being priced into this stock. I think more downside is on the horizon, and would recommend investors either stay away from, or short Cineplex today.
Invest wisely, my friends.
