There’s nothing better than watching an action-packed movie on a big screen supported by an astounding 12,000 watts of sound delivered via a network of over 40 speakers. The experience is incredible, and it’s beginning to pay dividends for investors of Canada-based IMAX Corporation (NYSE/IMAX) and its advanced theater technology for a movie screen as high as 98 feet. (Source: Brain, M., “How IMAX Works,” How Stuff Works, last accessed February 26, 2013.) We are talking colossal here as far as the screen size goes—and it could be a big investment opportunity, too.
Driving the excitement behind IMAX has been the movement of big-budget Hollywood movies to the IMAX experience in not only North America, but also Western Europe, Japan, China, and Russia. According to the company, it operated 643 IMAX theaters in 52 countries as of March 31, 2012.
China is a major area of growth and expansion, which is a major investment opportunity for IMAX. There are currently 92 IMAX theaters operating in China with another 133 theaters slated to open. With 1.3 billion people, the Chinese market is captivating.
Movie viewers want to see action movies on the big screens; so far, this has helped IMAX make big profits, suggesting the stock could be a good investment opportunity.
Recent blockbuster films include The Hunger Games, The Avengers, and The Dark Knight Rises. Films currently in IMAX theaters include The Hobbit: An Unexpected Journey and A Good Day to Die Hard. Soon to come will be Jack the Giant Slayer and Oz: the Great and Powerful.
While the move to the big screen has been strong, IMAX has been inconsistent with its revenues; it reported higher growth in 2009 and 2010 before a slight relapse in 2011. Revenues are estimated to grow 9.5% to $311 million in 2013, followed by 15.7% growth to $360 million in 2014, according to Thomson Financial consensus estimates. If IMAX can steadily record higher revenue growth, the stock will continue to deliver and could provide a sound investment opportunity.
On the earnings side, IMAX has also been inconsistent, though it has made money in seven of the last 10 years. What’s encouraging is that the company is expected to ramp up earnings to $0.98 per diluted share in 2013, followed by $1.35 per diluted share in 2014, according to Thomson Financial consensus estimates; this increase in earnings makes IMAX an intriguing possible investment opportunity.
For IMAX, it will be a matter of consistency that will make the stock a good investment opportunity. After quarters of inconsistent results versus Wall Street estimates, IMAX has beaten Thomson Financial consensus estimates in three of the last four quarters, including a stellar 43.8% outperformance in the fourth quarter. We may be seeing a good investment opportunity setting up.
The chart of IMAX below shows an upward-moving trendline along with strong relative strength and a bullish moving average convergence/divergence (MACD) reading. The stock’s chart is showing a bullish “golden cross,” with its 50-day moving average (MA) of $23.60 above its 200-day MA of $22.21, based on my technical analysis. The Fibonacci retracement levels suggest that if IMAX can hold on to its current break at the horizontal, blue resistance line, we could see a move toward $28.80, and then $38.00; this would make IMAX a great investment opportunity.
Chart courtesy of www.StockCharts.com
But watch the major short positions on IMAX, as about 25.5% of the float or 14.4 million shares shorted as of January 31, 2013, according to Thomson Financial. An upward move in the stock could drive short-sellers to the exits, pushing the stock price higher and representing a good investment opportunity.
There are various ways you can play IMAX, whether it’s buying the stock or call options. The length of the call option will depend largely on how rapid you believe the share price will rise.
Please note: the information on IMAX contained in this article is not to be construed as advice to buy the stock; rather, it is meant to provide an example of a potential good investment opportunity.