About Cinemark
The movie theater business is notoriously known as being far from lucrative, particularly from the standpoint of carving out a profit.
In fact, the truth of the matter is that for any given movie theater operator, whether it is a single-location entity or a large national and global chain such as the Cinemarks and the AMCs of the world, it is largely passing on a great deal of their profits made from the sale of movie tickets to the production companies and movie studios they get the movies from in the first place, instantly shrinking such a company’s margins.
Although this is the primary way in which Cinemark does indeed generate sales, it is most certainly, interestingly enough, not where it makes the bulk of its profits, as one probably could’ve reasonably guessed that when it comes to going above and beyond the black (breaking even), movie theater operators make the vast majority of their profits from the sale of concessions, and I’ll just say that whenever I go see a movie, I most certainly see how this is the case.
It’s like $25 for a large popcorn and a soda out here, y’all.
Can’t a man just consume some reasonably priced movie snacks and watch some Kung Fu Panda?
In addition to these primary revenue generators, Cinemark also turns over a bit of sales through the films it advertises for before your major motion picture goes up on the big screen, also producing sales through its subscription program by the name of the Cinemark Movie Club.
Now, I think it hardly needs to be said that the continual rise in media and related content streaming has and will continue being an existential threat to live on location theaters, with major media conglomerates including Comcast (Peacock and Hulu), Disney (Hulu), Amazon, Roku, to name a literal few, adjusting and adapting to consumer’s needs well beyond what both AMC and Cinemark have done thus far and while there has been a strong post-COVID-19 boom as it relates to consumers visiting their local movie theater, loading up on some snacks and sitting down for their next cinematic adventure. I am also of the personal opinion that movie theaters are much like malls; they are slowly but surely becoming more and more obsolete at the proportional rate at which technology eats its market share and subsequently nabs consumers.
I mean, even if I did consider myself to be someone who was very into going to the movies, I could easily see myself being compelled, on the basis of cost(s) alone, to merely watch the same movie from the comfort and convenience of my own home.
I’ll be the first to admit that I alone am not necessarily an accurate representation of everyone else on the earth, however, I think I am onto something with this in-house movie trend.
It is also worth considering the fact that going to the movies is usually deemed to be far more of a discretionary expense than an essential one, and as consumers tighten their budgets, for whatever reason(s), let’s just say they are not going to prioritize spending any little amount of capital they have in paying for their necessities well before going out on a movie date.
While I am not exactly the most optimistic on the sector in which Cinemark operates, this company’s core financials may show some tangible promise and might just be compelling enough to make me want to consider its stock (NYSE: CNK) as a long-term, buy and hold investment play in the seasoned entertainment space.
Let’s see, shall we?
Cinemark’s stock financials
Headquartered in the adorable little town of Plano, Texas, Cinemark has a current prevailing market capitalization of $2.61 billion, an associated stock price of $21.37, a price-to-earnings (P/E) ratio of 14.99 and does not issue a regular annual dividend to its shareholders during the publication of this stock analysis article.
In considering these initial facts and figures, it can be found that Cinemark’s shares (NYSE: CNK) seem to be trading at more than reasonable levels, particularly with respect to its present price-to-earnings ratio and it being less than the standard fair value benchmark of 20, and as for the company’s management opting to not allow its margins to be further compressed by means of paying out an annual dividend, I say that’s all good to me, as the absolute last thing this company needs is to bleed cash.
Moving over to the state of the company’s balance sheet, Cinemark’s executive management team is responsible for taking care of and strategically deploying approximately $4.8 billion in terms of total assets as well as just about $4.5 billion in terms of total liabilities, which, sure, is definitely on the higher end of the outstanding debt(s) spectrum, but it is nevertheless what I expected to see coming out of this company, as this firm is likely (like its major competitive counterpart, AMC) using a good deal of debt to both fund its current operations but also attempting to grow them as well, and while I do enjoy seeing the company technically hold more in total assets than obligations and liabilities, this does indeed cut it a little close and given the gradual decline of the industry, it would be far from a surprise if Cinemark’s executives opted to tack on some more debt in order to stay alive.
I sort of despise how overused this term has been used in our society, however, I think it is fair to say that this theater chain’s balance sheet is at an inflection point.
Relating to the company’s income statement, Cinemark obviously didn’t do so hot through the prime COVID era, experiencing a recent low in terms of annualized revenues in the amount of $686 million, which, in the greater overall context of its revenues typically falling in and ever so slightly around the $2 billion area code in prior years, is a material drop, no ifs, ands or buts about it.
Nevertheless, this was, like its lack of dividend and all things considered with its balance sheet structure, to be reasonably expected, and thus the main reason I point it out is because it speaks directly to the company’s vulnerabilities to public health emergencies, and I frankly (and sadly) don’t see a future in which COVID-19 and other related viruses don’t rear their ugly heads again and force yet another crushing blow to an already vulnerable industry.
I’m really not trying to sound like a Debby Downer, but ‘tis what it is, ladies and gentlemen.
Onto the condition of the company’s cash flow statement, Cinemark’s total cash from operations during and between 2019 and 2023 took an absolute bath in 2020, reporting a figure of -$330 million, and when putting it up against other years during this era, this, once again, is far from being an immaterial discrepancy in the context of how much cash is draws in as well as bleeds. Specifically, with the company’s total cash from operations ranging between a relative low of $136 million (2022) and a high of $562 million (2019) throughout this time period.
Cinemark’s stock fundamentals
Lastly, as it pertains to Cinemark’s net profit margin as it is found on Charles Schwab’s platform, it boasts a margin of 7.23%, whereas its primary direct competitor, AMC, touts a net profit margin of a much less impressive and more daunting -6.75%, which can slightly be attributed to the fact that AMC does seem to be investing more aggressively in the streaming category, leading to naturally more depressed margins, so sure, while I do hope (and already believe, frankly) that Cinemark’s executives have looked further into diving deeper into streaming, this company already knows what it is good at and what it is not.
Additionally, I take a bit more comfort in knowing that Cinemark’s net profit margin is markedly greater than that of its most sizable competitor, and not only being better, but distinctly positive, which in and of itself is a distinct positive for a seasoned company stuck within the confines of a progressively tough line of business.
Should you buy Cinemark stock?
If I am forced to put my negative preconceived notions (which still certainly apply, mind you) and just go off of the numbers we’ve seen from Cinemark today, its shares, according to its currently listed price-to-earnings ratio, are technically undervalued, its revenues have also been rising following what has so far been the worst of COVID-19, but the initial drop was still substantial, also incorporating the facts that its balance sheet is in a tight spot, all things considered, its cash flows are very tight as they relate to skewing just above and below the black but one can also see that its net profit margin is comparably in good shape.
When putting these pieces together and when ultimately determining whether or not this company’s stock (NYSE: CNK) is worth pondering as a long-term investment, I think it makes the most amount of sense to render this company a “hold” rating, and not a “sell” rating largely due to the fact that Cinemark is seemingly doing considerably better than its main competitor and it has a lot to gain from AMC’s rather compromised state.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.
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