Strictly by the numbers, cineplex operator Cinemark (NYSE:CNK) seems like a mess. However, the scene shouldn’t end there because it’s a work in progress. In due time, the company should be on your recession-prep radar thanks to its compelling relevancy during a recession. Over the long run, I am very bullish on CNK stock.
Ugliness Against CNK Stock Just Gets the Story Moving
True to form, every great cinematic contribution – indeed, practically anything worth watching – all have one element in common: the materialization of conflict and the attempt to resolve it. From the Empire that stands against a farm boy in a galaxy far, far away to the menacing underwater creature that strikes terror in a New England beach town, every compelling story features conflict.
For CNK stock, this conflict comes in the form of the COVID-19 disaster and the disproportionate impact it had on Cinemark’s financials. For example, the company issued a considerable amount of debt relative to the pre-pandemic years. Its financial stability is questionable based on declining asset value and generally rising liabilities. Further, on an annual basis, Cinemark continues to post operating losses.
Critics can go on and on. However, blasting CNK stock now is akin to leaving a theatrical showing of the original “Star Wars” because Darth Vader felled Obi-Wan Kenobi. In reality, this scene represents a conflict within a conflict, catapulting the underlying transition from adolescence to manhood. However, said transition isn’t possible without incurring pain and sacrifice.
In addition, by the time of that pivotal scene, the momentum had started to shift in favor of the film’s heroes. Like a cumbersome jar that won’t open, the collective applied force might not seem like it’s doing anything. However, once a critical breakthrough eventually occurs, the rest of the process is easy.
Fundamentally, the argument for CNK stock is that investors may be near the end of the difficulties. Therefore, you might not want to jump ship prematurely.
Americans Love the Movies
Despite the rise of content streaming networks and the prognostications of the death of the box office, Americans still love the movies. It’s practically in their DNA, with Hollywood representing one of the iconic exports of the U.S. Further, the resounding success of the latest film in the Spider-Man franchise, Spider-Man: Across the Spider-Verse, affirms the bullish narrative for CNK stock.
According to Variety, a combination of goodwill from the predecessor film, Spider-Man: Into the Spider-Verse, along with anticipatory hype generated a massive blockbuster. Already, Across the Spider-Verse rang up $208 million in box offices globally, according to the from about two weeks ago. This stat includes $88.1 million generated in international theaters. Notably, the journal states that the film cost $100 million to make.
Further, investors shouldn’t view the spiked demand at the box office as a one-off event. As TipRanks reporter Stephanie Bedard-Chateauneuf stated early last year, Spider-Man: No Way Home and many other enticing films produced strong growth for Hollywood. With momentum continuing to be strong for the big screen despite competing entertainment platforms, CNK stock should be a downwind beneficiary.
A Recession Could Help Cinemark
Interestingly, while critics might label a possible incoming recession as a risk factor for CNK stock, an economic downturn might help Cinemark. Historically, during both the Great Depression and Great Recession, moviegoers found some solace through escapism via the big screen.
Of course, that’s not to say that movie studios suffered no damage from downcycles. That would be ridiculous. However, as the provider of cheap entertainment situated in a social setting, cineplex operators such as Cinemark may benefit from the trade-down effect. Better yet, this thesis already gained momentum.
In particular, executives at Costco (NASDAQ:COST) noted that some customers have started to trade down from beef purchases to less-pricier protein alternatives such as pork and chicken. As well, other customers began purchasing canned meat and fish products, representing the lower cost rung of the animal protein spectrum.
In other words, people still want their luxuries, whether that’s “real” proteins or entertainment services. However, financial pressures have forced consumers to consider the lower-cost option. Fortuitously, this framework benefits CNK stock.
Is CNK Stock a Buy, According to Analysts?
Turning to Wall Street, CNK stock has a Moderate Buy consensus rating based on six Buys, four Holds, and one Sell rating. The average CNK stock price target is $19.10, implying 15.7% upside potential.
The Takeaway: CNK Stock is Just Getting Started
At first glance, the hard print undergirding CNK stock presents significant risks. However, as Cinemark and the rest of the Hollywood industry recover from the pandemic, the positives should shine brightly. Moreover, because Cinemark represents the comparatively cheaper entertainment provider, an economic downturn might actually benefit CNK.
