Despite the macroeconomy facing multiple headwinds due to inflation and tight monetary policy, rapid advancements in technology and digitalization could fuel the growth of the entertainment industry.
To that end, investors could watch out for entertainment stocks, Cinemark Holdings, Inc. (CNK) and IMAX Corporation (IMAX). However, it could be wise to avoid AMC Entertainment Holdings, Inc. (AMC) due to its weak fundamentals.
The integration of a wide range of OTT services across streaming devices among American households is expected to drive the media and entertainment sector across the region.
Moreover, AR and VR content has garnered attention of media and entertainment businesses. Also, companies are increasingly adopting artificial intelligence (AI), machine learning, and natural language processing in predicting user engagement with content to provide customized recommendations for improving content.
This could drive the demand and growth of the entertainment sector in the years to come. According to Statista, total revenue in the Entertainment market is anticipated to expand at a CAGR of 10.5%, resulting in a projected market volume of $48.76 billion by 2027.
Let’s take a closer look at their fundamentals of the featured stocks.
Stock to Sell:
AMC Entertainment Holdings, Inc. (AMC)
AMC engages in the theatrical exhibition business. The company owns, operates, or has interests in theatres in the United States and Europe.
In terms of trailing-12-month net income margin, AMC’s negative 21.36% compares to the industry average of 2.94%. Its negative 9.85% trailing-12-month return on total assets compares to the industry average of 1.49%. Likewise, its negative 8.05% trailing-12-month EBIT margin compares to the 8.67% industry average.
AMC’s operating loss for the fiscal first quarter ended March 31, 2023 narrowed 35.2% year-over-year to $108.20 million. The company’s adjusted net loss narrowed 32.5% year-over-year to $179.70 million. Its adjusted loss per share narrowly increased 50% year-over-year to $0.13.
AMC’s EPS for the quarter ended June 30, 2023, is expected to remain negative. Over the past year, the stock has fallen 44.1% to close the last trading session at $5.12
AMC has an overall rating of D, which equates to a Sell in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #5 in the Entertainment - Movies/Studios industry. It has an F grade for Stability and a D for Value, Sentiment, and Quality. Click here to see additional ratings of AMC for Growth and Momentum.
Stocks to Watch:
Cinemark Holdings, Inc. (CNK)
CNK engages in the motion picture exhibition business, with 518 theatres and 5,847 screens in the U.S. and Latin America as of December 31, 2022.
In terms of the trailing-12-month EBIT margin, CNK’s 5.62% is 35.2% lower than the 8.67% industry average. Its negative 98.55% trailing-12-month Return on Common Equity compares to the industry average of 3.29%. Also, its negative 7.69% trailing-12-month net income margin compares to the 2.94% industry average.
CNK’s total revenue for the fiscal first quarter ended March 31, 2023, increased 32.6% year-over-year to $610.70 million. Its adjusted EBITDA increased 242.1% year-over-year to $86.20 million. Moreover, its loss per share attributable to CNK’s common stockholders narrowed 95.2% year-over-year to $0.03
Analysts expect CNK’s revenue for the quarter ended June 30, 2023, to increase 15.3% year-over-year to $857.71 million. It has an impressive earnings surprise history, surpassing its consensus revenue estimates in each of the trailing four quarters. CNK has gained 77.6% year-to-date to close the last trading session at $15.38.
It has a B grade for Growth and Momentum in our POWR Ratings system. It is ranked #3 of 5 stocks in the Entertainment - Movies/Studios industry.
To access the other ratings of CNK for Value, Stability and Sentiment, and Quality, click here.
IMAX Corporation (IMAX)
Headquartered in Mississauga, Canada, IMAX operates 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.
In terms of the trailing-12-month EBIT margin, IMAX’s 6.28% is 27.5% lower than the 8.67% industry average. Likewise, its 0.39x trailing-12-month asset turnover ratio is 20.6% lower than the industry average of 0.49x. And in terms of trailing-12-month Return on Common Equity, IMAX’s negative 2.23% compares to the industry average of 3.29%
For the fiscal first quarter that ended March 31, 2023, IMAX’s adjusted EBITDA per credit facility attributable to common shareholders increased 84.3% year-over-year to $27.28 million.
The company’s adjusted net income came in at $9.05 million, compared to an adjusted net loss of $8.24 million in the prior-year quarter. Additionally, its adjusted net EPS came in at $0.16, compared to an adjusted net loss per share of $0.14 in the year-ago period.
Analysts expect IMAX’s EPS and revenue for the quarter ended June 30, 2023, to increase 113.3% and 16.8% year-over-year to $0.15 and $86.42 million, respectively. Over the past nine months, the stock has gained 25.1% to close the last trading session at $16.90
It is ranked first in the same industry. It has a B grade for Growth and Quality.
We have also given IMAX grades for Value, Momentum, Stability, and Sentiment. Get all IMAX ratings here.
What To Do Next?
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CNK shares were trading at $15.70 per share on Wednesday morning, up $0.32 (+2.08%). Year-to-date, CNK has gained 81.29%, versus a 19.82% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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