Headquartered in Mississauga, Canada, IMAX Corporation (IMAX) operates as an entertainment technology company specializing in motion-picture technologies and large-format motion-picture presentations.

The company provides cinematic solutions through proprietary software, intellectual property, theater architecture, and specialized equipment. It has over 1,500 IMAX theaters in over 80 countries and territories worldwide.

Last month, IMAX and ODEON Cinemas Group (ODEON) expanded their long-standing partnership spanning key European cinema markets. “Europe has been a key driver of the resurgence in global cinema, with audiences returning in strong numbers for this incredible blockbuster slate and exhibitors like ODEON raising the bar for the theatrical experience,” said Rich Gelfond, CEO of IMAX.

“As we grow market share around the world, IMAX continues to grow, diversify, and enhance its global network, and this new agreement with our longstanding partners at ODEON further accelerates our momentum,” he added.

However, investors have been bearish about IMAX due to its deteriorating financials and declining operating efficiency. The company needs to hold a lot of inventory to keep its business running efficiently.

The stock has plummeted 14% in price year-to-date and 9.1% over the past year to close the last trading session at $16.28. It is currently trading 26.3% below its 52-week high of $22.10, which it hit on October 25, 2021.

Here is what I think could influence IMAX’s performance in the upcoming months:

Poor Financials

For its fiscal first quarter ended March 31, 2022, IMAX’s revenue improved 54.6% year-over-year to $60.03 million, and its gross margin increased 83.8% from the year-ago value to $31.80 million. However, its selling, general, and administrative expenses amounted to $31.77 million. Also, the company’s loss from operations came in at $8.03 million.

IMAX’s loss before taxes came in at $9.34 million, down 25.7% year-over-year. Its net loss and net loss per share stood at $11.95 million and $0.23, respectively. The company’s net cash in investing activities and in financing activities amounted to $10.60 million and $13.04 million, respectively.

Favorable Analyst Estimates

Analysts expect IMAX’s revenue for the fiscal 2022 second quarter (ended June 2022) to come in at $78.52 million, representing an 83.4% rise from the same period in 2021. The $0.17 consensus EPS estimate for the to-be-reported quarter indicates a 241.7% year-over-year increase.

In addition, IMAX’s revenue and EPS for its fiscal year 2022 (ending December 2022) are expected to grow 27.1% and 414.3%, respectively, year-over-year. Also, Street expects the company’s EPS to grow 36.6% per annum over the next five years. The 12-month median price target of $22.40 indicates a 37.6% potential upside. The price targets range from a low of $19.00 to a high of $25.00.

Mixed Valuation

In terms of forward non-GAAP PEG, IMAX is currently trading at 0.45x, 65.9% lower than the industry average of 1.32x. However, the stock’s forward non-GAAP P/E multiple of 35.44 is 117.1% higher than the industry average of 16.33.

In addition, its forward EV/Sales and EV/EBIT ratios of 3.37 and 29.53 compared with industry averages of 1.89 and 13.90, respectively. In terms of forward Price/Sales, it is currently trading at 2.97x, 131.6% higher than the industry average of 1.28x.

High Profitability

IMAX’s trailing-12-months gross profit margin of 53.74% is 5.9% higher than the industry average of 50.74%. Its trailing-12-months levered FCF margin of 22.27% is 125.8% higher than industry averages of 9.86%. Moreover, its trailing-12-months CAPEX/Sales of 6.15% is 44.3% higher than the 4.26% industry average.

POWR Ratings Depict Uncertainty

IMAX has an overall rating of C, which translates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

IMAX has a B grade for Growth, consistent with its positive revenue and earnings growth estimates. In addition, it has a D grade for Momentum. It is justified as the stock is trading below its 200-day moving average of $17.99.

In addition, IMAX has a C grade for Value, which is in sync with its mixed valuation multiples.

Of the eight stocks in the Entertainment – Movies/Studios industry, IMAX is ranked #1.

Beyond what I have stated above, we have also given IMAX grades for Sentiment, Stability, and Quality. Get all the IMAX ratings here.

Bottom Line

Market sentiment about IMAX has been bearish lately, owing to the company’s disappointing financials and declining operating efficiency. Furthermore, the macroeconomic headwinds, including record-high inflation, the Fed’s hawkish stance, shifts in consumer spending patterns, and the increasing possibility of a recession, could dampen the company’s performance.

Despite analysts’ positive outlook for the stock, investors should wait for a better entry point.

IMAX shares were trading at $16.37 per share on Friday morning, up $0.09 (+0.55%). Year-to-date, IMAX has declined -8.24%, versus a -18.43% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...

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