Shares of IMAX (IMAX) recently stamped a new 52-week high after an excellent forth-quarter earnings release. In this article I'm going to analyze which opportunities are presented by the fundamental situation and assess if there is still room for the shares to rise.
Recent results and international expansion
In the fourth quarter IMAX signed deals for 28 new commercial theaters and installed 43 new theaters, bringing its total commercial network to about 600 theaters in 53 different countries around the world. Box office results marked a sharp improvement of 50% compared to 2011, reaching $621 million. Additionally, the global per screen average rose to approximately $1.2 million in 2012 from about $1.1 million in 2011. For the full year, revenues increased 22% to a record high of $276 million, while net income rose almost 300% to $41.3 million. For the last four years, revenues have risen 63%, cash and equivalents have reached $25million and debt has narrowed 73% to $11 million.
Moreover, while IMAX's commercial network has quadrupled over the last five years, the company has still a backlog of 276 screens, and 65% of the 1,700 identified zones for new screens are still available, the most of which are in under penetrated international markets, like Russia, China, Latin America and India. These countries currently represent the focus of the company in terms of international expansion which, as it clearly appears from the chart below, has a lot of room to proceed further
Hollywood direct involvement and foreign movies
Over the last few years, many renowned Hollywood directors have embraced the IMAX standard, calling it superior compared to other formats. Cristopher Nolan, the director of international blockbusters like "The Dark Knight" and "Inception", said that he reckons that "IMAX is the best film format that was ever invented". This, apparently is not an unshared opinion: JJ Abrams and Francis Lawrence shot some scenes with IMAX cameras for, respectively, the next "Star Trek" and the Hunger Games sequel, "Catching Fire".
Joe Kosinski took a step further, using the expanded IMAX ratio for "Oblivion", which will be shown in IMAX theaters one week before than in regular venues. This trend of showing movies in IMAX theaters a few days before than in regular venues is accelerating, and has proved hugely successful in the past, for example with "Mission Impossible 4".
At the same time, in foreign countries IMAX is no longer solely tied to the domestic performance of Hollywood titles, having started to pick the best movies for each country, in order to have the best programming even when an Hollywood blockbuster is not available. This strategy has proved particularly successful especially in China.
From a chart standpoint, IMAX shares are tough to call (see chart for reference): the freshly stamped 52-week high represents a tough resistance to break, and support is currently being offered only by the 20-days SMA. While it has proven as viable support since December, should the shares dip below it investors would face the possibility of a retracement towards the 50-days SMA, and even more probably towards the lower line of support (yellow line in the chart), which currently stands right below $2.3.
As of this writing, shares have closed right above the 20-days SMA. This means that, in order to edge risk, before opening a new position (or adding to an existent one) investors need to see if this support prove solid once again:
- if it does: the stock could rebound towards the upper line of resistance which, if broken, could add more fuel to the recent rally
- in it does not: the stock will probably retrace lower, therefore I'd suggest a wait-and-see approach in order to allow the stock to find a new support
The company has multiple strengths in its steadily growing financials, in an international expansion still in its early stages and in a movie industry which has many blockbusters scheduled for release in the next few years. Moreover, IMAX most important differential advantage, which leaves them with no equals in the whole world, is its brand: in the words of its CEO
"Our brand resonates around the world and is known for excellent quality and a premium entertainment experience that just cannot be found anywhere else"
However, with a P/E of 40 and a PEG of 3.5 the stock doesn't look cheap. For this reason, and given the difficult technical situation the stock is encountering, a healthy pullback might be coming.
IMAX, however, constitutes a great buy long-term. If the stock indeed retraces to lower levels, it would be a great opportunity to buy a great international growth expansion still in its early stages at great price.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.