Despite macroeconomic challenges, the entertainment industry is growing due to advanced technology adoption, enhancing user experiences and driving enduring expansion.
However, while it could be wise to buy IMAX Corporation (IMAX), AMC Entertainment Holdings, Inc. (AMC) might be best avoided.
Before diving deeper into their fundamentals, let’s discuss why the entertainment industry is well-positioned for long-term growth.
In the entertainment industry, despite a 15% increase in U.S. movie ticket prices compared to pre-pandemic levels in 2023, cinema-going remains reasonably affordable.
Moreover, 2023 box office sales have already surged ahead of last year by $1 billion, reaching impressive gross earnings of $5.8 billion up until July 30. This marks a significant contrast to the $4.8 billion recorded in the prior-year quarter, as noted by Boxoffice Pro’s chief analyst, Shawn Robbins.
In addition, technological advances are changing film production and distribution. Augmented reality (AR) and virtual reality (VR) content are gaining attention, and AI tools like machine learning and natural language processing are used for content refinement and personalized recommendations to engage audiences.
According to a report by Markets N Research, the global movie theatre market is expected to expand at a CAGR of 4.5% to reach $92.40 billion in 2030.
Considering these conducive trends, let’s take a look at the fundamentals of the two above-mentioned Entertainment - Movies/Studios stocks.
Stock to Avoid:
Stock #2: AMC Entertainment Holdings, Inc. (AMC)
AMC and its subsidiaries engage in the theatrical exhibition business. The company owns, operates, or has interests in theatres worldwide.
In terms of the trailing-12-month gross profit margin, AMC’s 10.74% is 78.3% higher than the 49.37% industry average. However, its 0.46x trailing-12-month asset turnover ratio is 4.9% lower than the 0.48x industry average.
AMC’s total revenues for the second quarter ended June 30, 2023, increased 15.6% year-over-year to $1.35 billion. Its net earnings came in at $8.10 million, compared to a net loss of $121.60 million in the year-ago quarter.
However, the company’s adjusted net loss stood at $6.60 million. As of June 30, 2023, AMC’s total assets stood at $8.70 billion compared to $9.14 billion as of December 31, 2022.
For the quarter ended September 30, 2023, AMC’s EPS is expected to remain negative. Over the past year, the stock has declined 85.3% to close the last trading session at $9.26.
AMC’s weak fundamentals are reflected in its POWR Ratings. It has an overall rating of D, which translates to Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an F grade for Stability and a D for Sentiment and Quality. It is ranked last in the six-stock Entertainment - Movies/Studios industry. To see AMC’s Growth, Value, and Momentum ratings, click here.
Stock to Buy:
Stock #1: IMAX Corporation (IMAX)
IMAX and its subsidiaries operate as a technology platform for entertainment and events worldwide. The company operates through three segments: IMAX Technology Network; IMAX Technology Sales and Maintenance; and Film Distribution and Post-Production.
On September 13, IMAX and PFT announced plans to expand their strategic relationship into the streaming ecosystem. IMAX will provide its Stream Smart technology to PFT customers in Europe, Asia, and Australia, enhancing global access to a solution that improves picture quality and reduces distribution and storage costs for streaming platforms.
Vikram Arumilli, General Manager of Streaming and Consumer Technology at IMAX, said, "Our suite of streaming technology products, including Stream Smart, provides a best-in-class service for direct-to-consumer broadcast and streaming companies, and PFT's' ability to leverage this for their customers is a win-win for both organizations."
On July 25, 2023, IMAX and Cineplex Inc. expanded their partnership in Canada, adding five new IMAX systems and two IMAX with Laser upgrades. Cineplex also renewed terms for 24 existing IMAX locations through 2028, solidifying their 25-year partnership, totaling 29 IMAX locations in Canada.
Additionally, IMAX has signed 84 agreements for new or upgraded systems worldwide in 2023, surpassing last year's total.
In terms of the trailing-12-month levered FCF margin, IMAX’s 18.36% is 129.3% higher than the 8.01% industry average. Likewise, its 6.17% trailing-12-month Capex/Sales is 53.3% higher than the 4.02% industry average. Additionally, its 53.89% trailing-12-month gross profit margin is 9.2% higher than the 49.37% industry average.
IMAX’s total revenues for the second quarter that ended June 30, 2023, rose 32.5% year-over-year to $97.98 million. Its gross margin increased 31.5% year-over-year to $57.89 million. The company’s adjusted net income increased 269.2% year-over-year to $14.40 million. Also, IMAX’s adjusted net income per share increased 271.4% year-over-year to $0.26.
Street expects IMAX’s EPS for the quarter ending December 31, 2023, to increase significantly year-over-year to $0.86. Its revenue for the same quarter is expected to increase 29.1% year-over-year to $388.37 million. Over the past year, the stock has gained 32.6% to close the last trading session at $19.82.
It’s no surprise that IMAX has an overall rating of B, which translates to Buy in our proprietary POWR Ratings system.
It has an A grade for Growth and a B for Quality. It is ranked first out of six stocks in the same industry. Beyond what we stated above, we also have given IMAX grades for Value, Momentum, Stability, and Sentiment. Get all the IMAX ratings here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
AMC shares were trading at $9.23 per share on Monday afternoon, down $0.03 (-0.32%). Year-to-date, AMC has declined -77.32%, versus a 13.95% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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