Which movie theater stock has enormous growth potential?
It’s a well-known fact that the coronavirus epidemic severely impacted the film business. On the other hand, Box office sales are climbing again as economies throughout the globe progressively recover.
If you’re curious about which firms stand to profit from the mass return to movie theaters, continue reading.
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Stocks of the best movie theaters
Consider the following fascinating movie theater stocks for investors:
AMC Entertainment, Inc.
AMC Entertainment (NYSE: AMC) is the biggest movie theater chain globally. Surprisingly, it is also one of the best-performing stocks for 2021.
AMC’s stock price soared in early 2021 due to a short squeeze and the stock being popular among retail investors on Reddit and other social media platforms. Its abysmal performance in 2020 due to the pandemic will almost certainly result in year-over-year sales growth in 2021, but considerable hurdles remain.
Over the last year, AMC Entertainment added $1.5 billion to its already $10 billion in debt. Even if the movie theater business sells further shares, repaying that debt and large interest payments would be difficult. The corporation lost $4.6 billion in 2020, which is acceptable in the event of a pandemic, but it also lost money in 2019.
The second negative aspect of AMC is that it has developed into a meme stock, which means that its increases have turned its trading price unrelated to its business fundamentals. While the movie theater business is anticipated to rebound considerably this year, AMC stock is likely too volatile for most investors.
AMC preserves competitive power on a fundamental level. Due to the closure of rival theaters or other significant operational difficulties, AMC has increased its market share during the last year. It might be one of the primary beneficiaries if the movie theater sector recovers more quickly than projected.
IMAX (NYSE: IMAX) is well known for licensing its patented screen technology to exhibitors such as AMC. The firm operates on an asset-light business model and is not responsible for constructing or maintaining theaters. IMAX licenses contain the intellectual property and technology that enable the presentation of films on gigantic screens.
Additionally, the company’s premium screens enable exhibitors to demand higher ticket costs since many filmgoers are ready to pay a premium for immersive experiences. This attribute may become more valuable as movie theater chains compete with and adapt to streaming service competition.
With the theater business increasingly centered on large-budget, unique effects-heavy films that benefit from IMAX’s premium viewing format, the firm is well-positioned to shape the industry’s future. Even with the pandemic’s impacts, IMAX is also financially sound, with more cash in hand than debt.
3. The Walt Disney World Corporation
Although The Walt Disney Company (NYSE: DIS) is not a pure-play movie theater company, few firms are better positioned to gain from a significant resurgence in the cinema sector. Disney dominated the movie office before the epidemic, and the House of Mouse will continue to affect the future of film.
Seven films released by the firm in 2019 grossed more than $1 billion at the worldwide box office, while the company’s films grossed more than $13 billion in total ticket sales that year. Returning to that level of success will be difficult, but Disney is well-positioned to do it. The company’s material portfolio is unequaled, with a plethora of famous characters and mega-franchises, like the Marvel Cinematic Universe and Star Wars.
Disney’s varied business model makes it a less hazardous investment than pure-play movie theater companies. If the movie theater industry’s rebound is slower than projected, the company’s successful Disney+ streaming service should continue to profit from the growing demand for streaming media. Disney’s parks and resorts and its media networks often do well as well, owing in part to the media empire’s multiple profitable outlets for monetizing its characters and content.
The movie theater industry’s trends
Major theater chains were forced to shut for months and operate at reduced capacity for an additional year because of the coronavirus outbreak. While these constraints are subsiding, and 2021 box office revenue growth is expected to be excellent, the movie theater sector faces substantial long-term concerns.
The proliferation of streaming services is eroding the value proposition that theatres provide. Several major film production firms, notably Disney, have chosen to distribute blockbuster films via direct-to-consumer streaming services rather than cinemas. Alternative forms of entertainment include video games and social networking.
Meanwhile, theater chains introduce new experiences, such as upgraded seating and food options. While they may help distinguish the movie theater experience from at-home watching, they are unlikely to replace the demand for streaming distribution systems completely.
While movie theater ticket sales are projected to increase this year, and certain movie theater stocks may do well in 2021, investors should proceed with caution in the theater business.