After more than doubling from its 52-week low, shares of Canadian cinema operator Cineplex Inc. (TSX:CGX) are now providing contrarian investors with an interesting rebound thesis.
The momentum in this stock is broadly positive right now, and with some investors having doubled up since the bottom on this stock, Cineplex might look like an attractive option for value-conscious investors.
That said, as with any stock that has been beaten up as badly as Cineplex has of late, there are some real risks with this company right now. Cineplex has just announced that it is selling its flagship head office building in Toronto for $57 million to help pay down debt, and assuage investor concerns about its credit facilities being out of order of late. The debt picture for Cineplex is not pretty right now, and investors are right to feel anxious about this stock in the context of a global pandemic that may see restrictions levied for longer than previously expected.
Even with a coronavirus vaccine on the horizon, social distancing rules are still anticipated to be in full force for the remainder of this coming year, and potentially into 2022. With a coronavirus variant just discovered in the U.K., real questions remain about how long the pandemic will take to truly get under control, and cinemas are one sector which obviously will feel the pain harder than others given the indoor, enclosed nature of their bricks and mortar business.
As more movies choose to be released on demand and production companies move away from traditional theatre agreements toward other streaming options, Cineplex has a number of long-term secular drivers not in its favour as well.
Therefore, this is a stock which ought to be on your watch list, and not your buy list right now, in my opinion.
Invest wisely, my friends.
