The entertainment industry has been under pressure as a result of macroeconomic uncertainties. So, I think it could be wise to wait for a better entry point in IMAX Corporation (IMAX) for reasons discussed throughout this article. However, AMC Entertainment Holdings, Inc. (AMC) is best avoided considering its weak fundamentals.
The media industry is in turmoil, and this is unlikely to change anytime soon. Media companies are dealing with two Hollywood strikes, declining ad revenue, and losing money on streaming businesses.
The entertainment industry’s streaming wars, which began with a pursuit of subscribers, have now escalated into a furious struggle for ad dollars, driven by a renewed emphasis on profitability, while the industry faces a slowdown in the advertising market.
Moreover, the recession worries have impacted the entertainment industry adversely, with consumers cutting back on their discretionary spending.
Let’s delve deeper into the fundamentals of the featured stocks.
Stock to Hold:
IMAX Corporation (IMAX)
Headquartered in Mississauga, Canada, IMAX operates as a technology platform for entertainment events globally. The company’s segments include IMAX Technology Network; IMAX Technology Sales and Maintenance; and Film Distribution and Post-Production.
IMAX’s forward EV/Sales of 3.06x is 63.6% higher than the industry average of 1.87x, while its forward Price/Cash Flow of 8.72x is 4.4% lower than the industry average of 9.12x.
IMAX’s trailing-12-month CAPEX / Sales of 7.76% is 93.2% higher than the 4.02% industry average, while its trailing-12-month EBIT margin of 6.28% is 26.5% lower than the 8.56% industry average.
For the first quarter that ended March 31, 2023, IMAX’s revenues increased 98.6% year-over-year to $17.82 million, and its gross margin grew 57.5% from the year-ago value to $50.05 million. Its income from operations was $11.40 million, compared to a loss of $9.03 million in the prior-year period.
Also, the company’s net income came in at $5.12 million versus a loss of $11.95 million in the previous year’s quarter. Furthermore, the company’s EPS was $0.04, compared to a loss per share of $0.23 in the same quarter in 2022.
IMAX’s revenue is expected to increase 25.6% year-over-year to $377.89 million for the year ending December 2023. Also, its EPS is expected to grow significantly year-over-year to $0.76 for the same period. IMAX’s have gained 19.7% over the past nine months to close the last trading session at $16.76.
IMAX’s POWR Ratings reflect uncertainty. The stock has an overall rating of C, equating to a Neutral in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It also has a C grade for Value, Sentiment, and Momentum. It is ranked first among 5 stocks in the Entertainment - Movies/Studios industry. Click here for the additional POWR Ratings for Stability, Growth and Quality for IMAX.
Stock to Avoid:
AMC Entertainment Holdings, Inc. (AMC)
AMC engages in the theatrical exhibition business. The company owns, operates, and has interests in approximately 950 theatres and 10,500 screens worldwide.
AMC’s forward EV/Sales of 2.53% is 35.2% higher than the 1.87% industry average. Its forward EV/EBITDA of 34.33x is 300% higher than the industry average of 8.58x.
AMC’s trailing-12-month gross profit margin of 8.90% is 82.1% lower than the industry average of 49.76%. Its trailing-12-month EBITDA margin of 1.53% is 91.5% lower than the industry average of 18.05%.
AMC’s operating costs and expenses increased 11.5% year-over-year to $1.06 billion in the first quarter that ended March 31, 2023. However, its operating loss was $108.20 million for the quarter. The company reported an adjusted net loss of $179.70 million, while its adjusted loss per share was $0.13.
Street expects AMC’s EPS to come in at negative $0.37 for the year ending December 2023. It missed EPS estimates in three of four trailing quarters. The stock has lost 57.6% over past year to close the last trading session at $4.31.
It’s no surprise that AMC has an overall D rating, equating to a Sell in our POWR Ratings system. It has an F grade for Stability and a D grade for Value, Sentiment and Quality. It is ranked last in the same industry.
Beyond what is stated above, we’ve also rated AMC for Growth, and Momentum. Get all AMC ratings here.
What To Do Next?
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IMAX shares were trading at $16.87 per share on Wednesday afternoon, up $0.11 (+0.66%). Year-to-date, IMAX has gained 15.08%, versus a 19.94% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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