The Imax (IMAX) train keeps rolling; so why is the stock down 22%

| About: IMAX Corporation (IMAX)
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IMAX Corp. (ticker: IMAX) announced another theater deal today. So why is the stock falling?

Yesterday's $9.25 closing price represented a 22% decline from Imax's peak on 2/10 and a 13% decline since its 3/10 earnings release.  During that time period, IMAX raised it 2005 guidance, announced theater deals in India and Spain, and declared the opening weekend for the Robots a success.  So why the negative sentiment?

A weak stock market explains some of it.  The Nasdaq is down 2% and 3% during those time periods   With a beta of 2.32, it is somewhat expected that IMAX would fall more than the overall market.  But perhaps there is more to the story...

1.  Imax's hype is catching up to its stock.
Expectations were running sky high earlier in the year, partly due to Imax's over-promotion; Imax's PR department has already churned out 16 press releases during the first 16 weeks of this year some of which merely rehash old news.  Below is a list of its theater announcements since the beginning of the year:

  • 1/5: Announced signing of 6 theaters in China to open in 2008.  Net addition: 6 theaters
  • 1/10: Announced signing of 2 theaters in Mexico.  Actually, pushed up the time-line for opening previously announced theaters from 2006 and 2007 to 2005.  Net addition: 0 theaters
  • 1/13: Announced signing of 3 theaters in China to open in 2008.  Net addition: 3 theaters
  • 1/18: Announced signing of 2 theaters in the Middle East to open in 2005 & 2007.  Net addition: 2 theaters
  • 2/2: Announced signing of 1 theater in  Netherlands to open in 2005.  Net addition: 1 theater
  • 2/9: Announced signing of 2 theaters in  China to open in 2007.  Actually, announced theater locations of previously announced deal.  Net addition: 0 theaters
  • 3/8: Announced signing of 2 theaters in Latin America to open in 2005 & 2006.  Net addition: 2 theaters
  • 3/17:  Announced signing of 2 theaters is India.  Actually, expanded previously announced agreement to 2 from 1 theater.  Net addition: 1 theater
  • 3/22:  Announced upcoming opening of 1 theater in Spain.  Deal was originally announced in 2004.  Net addition: 0 theaters

2.  Lack of U.S. growth.
Since the beginning of the year, Imax has yet to sign a single U.S. theater deal. A recent press release stated that 70% of new theater signings in 2004 were international.  Is the U.S. market already saturated?

3.  EPS guidance increased but theater expectations held steady.
In its recent earnings press release IMAX raised its EPS guidance to $0.35-$0.38 from $0.32-$0.35.  On the subsequent conference call, IMAX reiterated its previously stated guidance of 35 theater installations and 40-45 theater signings in 2005.  Why are theater signings/installations not rising as well if EPS is rising?  Following a red-hot 4Q04, does IMAX expect a slowdown in theater signings?