January 25, 2012 | In: Technology
Is IMAX Overvalued?
One of the stocks that I made a lot of money with is IMAX. IMAX, in case you don’t know, is a Canadian company which provides a unique theatrical experience (I wasn’t impressed myself, and I thought watching an IMAX movie was painful, regardless on how good the movie was). IMAX gets a royalty from using its technology. IMAX is a solid company, but is it worth trading at a forward P/E ratio of 21? Let’s see.
As stated earlier, IMAX makes money from royalties on movies that are using its technology, which means, the more movies we have, the more money IMAX will make. Most, if not all, important movies use the IMAX technology. Now, the question is, how many good movies do we have in 2012? Unless I have been living under a rock for the last year or so, we have only one good movie, the hobbit, which is set to be display in theaters by the end of this year. We don’t really have blockbusters movies this year (unless you call the new Snow White and the Hunstman movie a blockbuster), unlike last year where we had 2 Harry Potters, 1 Pirates of the Caribbean, and a Transformers movie. This mean that there is no way that IMAX will be able to make the same amount of money this year as last year (IMAX is one of the easiest stocks to predict, just know how many blockbusters there are and you will know the direction of the stock).
I’m not sure if good movies will be scarce in 2013 as well (well, IMAX must pay J.K.Rowling a huge sum of money to come up with the next Harry Potter series), but it seems that the whole movie business is in a decline state, at least from my perspective (maybe I’m wrong, but think about it, can you think of any unforgettable movie that you have watched lately?).
So what does that mean? It means that IMAX will disappoint investors another time (in a big way) this year (the latest big disappointment was back in June, 2011 – when IMAX had better movies). Any investor worth his salt should avoid this stock until after June of this year. The results will most likely be terrible, to say the least. In the extreme, I expect IMAX to trade in the single digit, but don’t expect IMAX to remain above the $20 past the summer – in fact, I consider it as an achievement if IMAX sustains the $15 level.
By the way, to add more to the problem, IMAX is expanding rapidly, and that expansion comes at a hefty cost. IMAX will feel it – and will make sure that its investors feel it – next June.
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