Three years ago this month, I went to see my first movie in a theater since Covid. The film was Top Gun: Maverick, a movie that tapped into my 1980s nostalgia and was more entertaining and coherent than your average sequel.
I wasn’t alone – the film grossed nearly $1.5 billion worldwide, making it the highest-grossing movie of Tom Cruise’s career, which is really saying something.
Steven Spielberg thanked Cruise for “saving movie theaters.” He may have been right: In the two previous Covid-tainted years, 2020 and 2021, U.S. movie theaters grossed just over $6.5 billion combined – barely more than half of the industry’s 2018 peak of $11.89 billion.
But Top Gun: Maverick triggered a revival – U.S. movie theaters grossed $7.37 billion in 2022, tacked on another 21% in 2023 to reach $8.9 billion, and are on track for a third straight year above $8 billion this year. That’s not quite pre-Covid levels, but it has also shattered the “movie theaters are dead” narrative that prevailed in 2020 and 2021, when industry analysts assumed that the trend of simply watching movies from your couch was here to stay.
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Turns out, people like going to the movies. It’s a shared experience – with buttered popcorn and candy! – that you can’t replicate at home. The mid-budget films may no longer be drawing crowds the way they once did (think Juno grossing $234 million on a $7 million budget in 2007, or My Big Fat Greek Wedding grossing $374 million on a $5 million budget in 2002), but the blockbusters – especially the summer blockbusters – are thriving like never before.
Consider: four of the 10 highest-grossing movies of all time – and seven of the top 20 – have come in the last four years. Nearly all of them were big-budget, big-studio efforts, and often sequels: Last summer’s Inside Out 2 was the highest-grossing animated film of all time; 2022’s Avatar: The Way of Water is the third highest-grossing film of any kind ever. Even non-sequels with themes or characters that everyone knows and big stars will draw a crowd, as evidenced by the “Barbenheimer” craze in the summer of 2023, when two original films by prestigious, high-profile directors grossed more than $2 billion worldwide. Or this year’s A Minecraft Movie, which has grossed nearly $1 billion worldwide and my daughter has seen three times in the theater already.
3 Undervalued Movie Theater Stocks to Consider
People will leave their couches and put their iPhones away for “events,” and plenty of movies rise to that level these days. And while many locally owned movie theaters were shuttered in the aftermath of Covid, including two of the three cineplexes my family typically frequented here in Vermont, the big boys managed to keep the lights on and are back to doing just fine. But while movie theaters nationally are doing roughly three-quarters of the business they were doing at their pre-pandemic peaks, share prices of the few publicly traded options aren’t trading at even half their all-time highs.
Let’s examine the three biggest movie theater stocks.
AMC Entertainment Holdings (AMC)
Current share price: 2.99
All-time high: 567 (in June 2021)
Estimated 2025 revenue: $4.97 billion
2019 revenue: $5.47 billion
Cinemark Holdings (CNK)
Current share price: 30.45
All-time high: 45 (in March 2015)
Estimated 2025 revenue: $3.31 billion
2019 revenue: $3.28 billion
Cineplex Inc. (CPXGF)
Current share price: 8.08
All-time high: 41 (in December 2013)
Estimated 2025 revenue: $1.43 billion
2019 revenue: $1.22 billion
That’s the two largest publicly traded U.S. movie theater chains in AMC and Cinemark (Regal Cinemas, the second highest-grossing U.S. chain, was taken private in 2018) and Cineplex, which is the largest movie theater chain in Canada with a 75% market share. All three of them are either on track for record sales this year or are within shouting distance (in AMC’s case) of their pre-Covid highs. And yet, their share prices are nowhere near their pre-pandemic apexes. One very important note: AMC’s 2021 share price high was an outlier, as the stock became a meme stock along with GameStop (GME) and others when retail investors ironically snatched up shares of “dying” companies to stick it to the hedge funds that were shorting them. AMC’s “real” high probably came in 2015, when it was trading in the (reverse split adjusted) 350s.
None of these three companies have returned to profitability, though they’re getting closer. But they are all on track for 7-8% sales growth this year, with an average price-to-sales ratio of about 0.75x.
We’ve had success in my Cabot Value Investor portfolio over the past year seeking out industries that were ravaged by Covid but have since made complete or near-complete comebacks. First it was the airlines, which led us to a quick double in United Airlines (UAL). Last month it was the cruise industry, which is led us to a stock that is up 40% in less than two months.
Movie theaters – left for dead little more than three years ago – are my next frontier of value investing. You could probably do well with any of the three movie theater stocks listed above.
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