The pandemic radically changed people’s preferences toward entertainment and film exhibitions. With the industry taking a big hit in revenues, fundamentally weak stocks, Cinemark Holdings, Inc. (CNK), and National CineMedia, Inc. (NCMI) could be best avoided.
Although new blockbusters are starting to draw moviegoers back to cinemas, we cannot expect movie theaters to be the same. With the surge in popularity of streaming services like Netflix, Amazon, and HBO, the competition of the movie theater industry is only likely to become more difficult in the years to come.
Moreover, macroeconomic headwinds of persistent inflation and recession fear still linger. Although inflation shows signs of easing, it remains above the target of 2%, calling for a tight monetary policy. This could put struggling entertainment companies under further pressure.
Amid this backdrop, investors could look to steer clear of fundamentally weak movie stocks CNK and NCMI.
Cinemark Holdings, Inc. (CNK)
CNK engages in the motion picture exhibition business, with 518 theatres and 5,847 screens in the U.S. and Latin America as of December 31, 2022.
In terms of trailing-12-month EBIT margin, CNK’s 3.14% is 60.5% lower than the industry average of 7.94%. Its trailing-12-month net income margin of negative 11.05% compares to the industry average of 3.32%. Likewise, its 1.18% trailing-12-month Return on Total Capital is 66.6% lower than the industry average of 3.54%.
For the fiscal fourth quarter ended December 31, 2022, CNK’s total revenue for the period declined 10% year-over-year to $599.70 million. Its net loss attributable to CNK came in at $99.30 million, compared to its net income of $5.70 million in the prior-year quarter.
Its adjusted EBTIDA declined 47.3% year-over-year to $73.50 million. Additionally, its net loss per share came in at $0.82, compared to its EPS of $0.05 in the year-ago period.
CNK’s EPS for the quarter ended March 31, 2023, is expected to remain negative. It has a bleak earnings surprise history, missing the consensus EPS estimates in three of the trailing four quarters. Over the past year, the stock has fallen 4.4% to close the last trading session at $16.28.
CNK’s weak fundamentals are reflected in its POWR Ratings. The stock has an overall rating of D, translating to a Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #4 out of five stocks in the F-rated Entertainment - Movies/Studios industry. It has an F grade for Stability and a D for Sentiment.
We have also given CNK grades for Growth, Value, Momentum, and Quality. Get all CNK ratings here.
National CineMedia, Inc. (NCMI)
NCMI operates a cinema advertising network in North America. It engages in the sale of advertising to national, regional, and local businesses and sells advertising on its Lobby Entertainment Network.
In terms of trailing-12-month EBITDA margin, NCMI’s 6.34% is 62.9% lower than the industry average of 17.09%. Its trailing-12-month CAPEX/Sales of 1.16% is 68.6% lower than the 3.70% industry average. Likewise, its 1.16% trailing-12-month Return on Total Capital is 67.3% lower than the industry average of 3.54%.
NCMI’s operating expenses for the fiscal year ended December 31, 2022, increased 32.3% year-over-year to $242.30 million. The company’s net loss attributable to NCMI narrowed 41.1% year-over-year to $28.70 million. Additionally, its loss per share narrowed by 42.6% year-over-year to $0.35.
NCMI’s EPS for the quarter ended March 31, 2023, is expected to remain negative. It has an unfavorable earnings surprise history, missing the consensus EPS estimates in three of the trailing four quarters. Over the past year, the stock has fallen 85.8% to close the last trading session at $0.36.
NCMI’s POWR Ratings reflect its grim outlook. The stock has an overall rating of D, equating to a Sell in our proprietary rating system.
The stock is ranked #5 in the same industry. Additionally, it has an F grade for Stability and Sentiment.
To see the additional ratings of NCMI for Growth, Value, Momentum, and Quality, click here.
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CNK shares were trading at $16.67 per share on Monday morning, up $0.39 (+2.40%). Year-to-date, CNK has gained 92.49%, versus a 8.17% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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