IMAX Corporation (USA) (IMAX) started the year off slowly, but the diversified entertainment giant has made a comeback of late.
For those less familiar, the company operates in several segments, including IMAX systems, theater system maintenance, joint revenue sharing arrangements, plus film production, distribution and post-production.
But that’s just the boring summary.
If you’ve gone to a movie lately, you know IMAX has truly revolutionized the way we watch movies. Last year, for instance, IMAX continued its rollout of the next-generation 3D laser system that delivers resolutions greater than the best 4K televisions.
This innovation is showing up in the stock price lately, too. Over the course of the last month, IMAX stock has gained nearly 10%, even as the S&P 500 has moved sideways.
IMAX Stock Can’t Go Anywhere But Up
The biggest catalyst for this recent investor optimism was its first-quarter earnings, which IMAX reported in late April. The company’s earnings per share of 22 cents represented a 200% increase year-over-year and handily cleared Wall Street’s consensus of 15 cents.
Strong top-line growth was one driver in the company’s expanding profitability, as revenue increased 48% to $92.1 million, topping the consensus for just $83.9 million. More specifically, global box office was one of the strongest segments, as it grew 64% year-over-year (and lower operating expenses also helped the company’s earnings per share growth).
Because of these strong numbers, more investors and analysts are starting to see the upside possible from IMAX stock. IMAX started 2016 off heading straight down and, even after last month’s recovery, is nearly 7% in the red.
With that in mind, the recent momentum is great — but it means you need to get in before it’s too late. IMAX stock is a great buy around current levels, because the earnings beat is really just the tip of the iceberg.
For example, in the earnings call, management explained that theaters with IMAX technology have realized superior performance, which is driving more installations. At the same time, The Jungle Book just set a record for its IMAX opening, taking in $20 million on 901 3-D screens this weekend.
That broke down to domestic sales of $10.3 million on 376 Imax screens and international sales of $9.7 million on 525 screens. IMAX’s international exposure is promising, but it has actually been weighing on shares this week. Many investors have been (and remain) concerned about the economy and credit availability in China, which is a major market for IMAX.
Still, I am a strong believer in the company and am confident the pros outweigh the cons here. Plus, I’m not alone on that assessment.
Last month, MKM Partners published a Barron’s article stating the stock had 30% upside at the time, citing the fact that “its expansion potential remains sizable with its installed base at just 44% of management’s forecasted global film zones” and the fact that IMAX continues buying back its own shares.
I have a similar price target, and while IMAX has gained momentum since MKM’s call, 18% more upside remains. Also consider that both our estimates are cautious; the median price target from analysts suggests more than 27% upside from current levels.
That said, I’ll repeat myself once more: Get in now, before the real gains begin. You won’t regret it.
Hilary Kramer is the editor of GameChangers, Breakout Stocks Under $10, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.
