Will Imax Make It?

| About: IMAX Corporation (IMAX)
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This continues the week of "so bad they're good" stories; earlier, it was Chico's that investors finally thought had run out of bad news and begun the turnaround.

And today, I look at Imax (NYSE:IMAX), a hugely disappointing stock from my portfolio, and see that it has quietly crept back up to something approximating a respectable share price.

Now, the news is not THAT good; it's still leagues away from the prices we saw a year ago, or even last August, before it announced that the four rumored suitors for the company weren't interested after all... or at least, not interested at its price (and all the analysts climbed over each other pressing the "sell" button).

I wrote a fair amount about Imax at the end of last year, noting how I had misjudged the company and that I also believed a fair price had to be a fair tick above where it was then trading, down at about $3.50, assuming you didn't believe the company was headed toward bankruptcy. Unfortunately, I didn't put my (additional) money where my mouth was at the time, since the earnings miss had forced a plunge in price from $5 to $3.50, and here, four months later, the shares are going for about $5 again.

And still, I think $5 is too cheap... but I'm just letting my investment ride. I'm still nervous, primarily about management, and am certainly not putting any more money into this management team.

But the recovery from last fall has been fairly quiet: The company effectively took itself off the market and said it would grow on its own, which means I expect we won't be trading on those buyout rumors anymore (though one never knows - maybe the private equity guys will be back once they've bought everything they actually like).
And the news has been positive, but mild this quarter; some new installations and orders, particularly overseas, and some buzz about the potential for its Hollywood flicks this year (the Spartan fight flick 300 had a surprisingly great opener on Imax, and Spiderman 3 and another Harry Potter are on the way. That will almost certainly be a nice step up from the series of flops it lucked into last year, including V for Vendetta and Poseidon).

But the biggest news so far came today -- big(ish) new deals with U.S. theater chains, which haven't exactly been closing deals in bunches of late. Imax will now be opening five theaters with Dickinson in the Midwest, and one each in California, Florida and Oregon for Regal (NYSE:RGC).

While the installation backlog even as of the terrible earnings release last November was decent, it's nice to see new deals, and especially nice to see that it expects at least three of those theaters to open this Spring. Imax still makes money mostly on the installations, so the more of those we see actually coming to completion the more will flow to the bottom line.

And it's a little bit of a network effect - the bigger the installed base, the more competing chains need to show they can get their Imax on, too - and we get into economies of scale, since Imax is still working from a pretty tiny installed base. The more theaters to distribute to, the cheaper it is to remaster, market and distribute its films. It doesn't take all that much to show good growth when you start out tiny.

The fates seem to be gathering - the share price is low, contrarians can look at a slate full of sells and holds from the analysts and a pretty big short ratio, the box office should be great this year on the back of some blockbusters, the theater owners are showing a little confidence and placing orders for new systems again ... is anyone else waiting for the other shoe to drop?

Disclosure: I own shares of IMAX.

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