Movie Stocks: theatres Are Being Abandoned, Time to Sell?

(By Rebecca Lipman. Data from Finviz.)

Movie theatres have struggled to explain significantly lower attendance rates that have plagued the industry this year. Let’s take a look at some of the proposed explanations:

Ticket prices, while mind-blowingly high, did not deter moviegoers in the start or middle of the economic slowdown that began in 2008. In fact, escapism helped bring an increase in movie attendance. Ticket prices have gradually increased in the years since 2008 but hardly enough to explain a 6% year-to-date drop in attendance.

How about home entertainment? Flat screens and high definition surround sound speakers have been getting bigger and cheaper every year. It’s no longer a bank-busting endeavour to outfit a living room with theatre-like sound and picture quality. Even 3-D televisions have hit the market, allowing consumers to add that final modern-viewing touch.

Perhaps this is the cause, but sales of plasma and LCD flat screens have been up for years, and 3-D sets haven’t exactly been flying off the shelves, so why would the effects only be seen now?

As for content, Rick Aristotle Munarriz of The Motley Fool writes “This is the year, after all, in which we got the eighth and final instalment in the Harry Potter movie series. Other popular franchises — Transformers, Cars, Pirates of the Caribbean, The Hangover — kicked in with fresh sequels.” How could such cash-cow blockbusters fail to bridge an attendance gap?

And as for content to play on home entertainment systems, the bridge between movie and DVD releases has been growing shorter every year. And services like On Demand, Netflix and Hulu offer a wide range of film and television options.

Still, “streaming services such as Netflix and Hulu have also been more popular for television shows than movies, largely because studios aren’t allowing their freshest retail releases to be made available on all-you-can-stream websites.”

One explanation that hasn’t been offered is a drop off at the concession stand – a serious profit driver for theatres. Are consumers still as willing to pay $4 or more for soda as they were in pre-recession days? And perhaps the content just isn’t what it used to be to convince moviegoers they simply can’t wait for it to hit DVDs, and that transportation, ticket prices, 3-D fees, and concession prices are all worth the trip.

So we were curious, which companies have exposure to this trend? For ideas we looked at companies in the movie-producing industry trading on US stock exchange.

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1. Cinemark Holdings Inc. (CNK): Market cap of $2.18B. Cinemark Holdings, Inc. and its subsidiaries engage in the motion picture exhibition business. Share price as of 10/21 at $19.29. Offers a good dividend, and appears to have good liquidity to back it up–dividend yield at 4.39%, current ratio at 2.4, and quick ratio at 2.35. The stock has gained 15.24% over the last year.

2. Regal Entertainment Group (RGC): Market cap of $1.96B. Operates a theatre circuit in the United States. Share price as of 10/21 at $13. The stock is a short squeeze candidate, with a short float at 16.48% (equivalent to 9.48 days of average volume). The stock has lost 2.62% over the last year.

3. DreamWorks Animation SKG Inc. (DWA): Market cap of $1.54B. Engages in the development, production, and exploitation of animated feature films and characters worldwide. Share price as of 10/21 at $19.3. The stock is a short squeeze candidate, with a short float at 16.88% (equivalent to 9.1 days of average volume). The stock has lost 43.85% over the last year.

4. Lions Gate Entertainment Corp. (LGF): Market cap of $983.51M. Engages in the motion picture production and distribution, television programming and syndication, home entertainment, family entertainment, new channel platforms, and digital distribution activities. Share price as of 10/21 at $7.29. Relatively low correlation to the market (beta = 0.62), which may be appealing to risk averse investors. The stock has lost 3.24% over the last year.

5. RealD Inc. (RLD): Market cap of $547.52M. RealD Inc. licenses stereoscopic three-dimensional or 3D technologies internationally. Share price as of 10/21 at $10.26. The stock is a short squeeze candidate, with a short float at 17.42% (equivalent to 7.84 days of average volume). It’s been a rough couple of days for the stock, losing 5.43% over the last week.

6. Rentrak Corporation (RENT): Market cap of $151.25M. Provides content measurement and analytical services to companies in the entertainment industry. Share price as of 10/21 at $13.79. The stock is a short squeeze candidate, with a short float at 7.75% (equivalent to 9.94 days of average volume). The stock has lost 49.23% over the last year.

7. Carmike Cinemas Inc. (CKEC): Market cap of $81.06M. Operates as a motion picture exhibitors in the United States. Share price as of 10/21 at $6.29. This is a risky stock that is significantly more volatile than the overall market (beta = 2.74). The stock is a short squeeze candidate, with a short float at 8.07% (equivalent to 8.17 days of average volume). The stock has lost 23.87% over the last year.

Interactive Chart: Press Play to see how analyst ratings have changed for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.

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