While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.
What: Shares of IMAX (IMAX 0.23%) sank 5% today after Benchmark initiated coverage on the jumbo-movie-screen technologist with a hold rating.
So what: Along with the call, analyst Mike Hickey planted a price target of $29.42 on the stock -- pretty much exactly where it closed on Tuesday -- suggesting that he sees limited upside at current levels. While Hickey is still positive on IMAX's near-term global growth prospects, he thinks that investors might not be baking enough long-term performance risk into the valuation.
Now what: Based on sluggish box office numbers lately, Benchmark thinks that IMAX's third- and fourth-quarter results could disappoint Wall Street. "We remain optimistic near term over the IMAX brand and premium ticket experience they offer to a rapidly unfolding international growth opportunity," Benchmark noted. "We remain cautious over the Company's ongoing performance risk, particularly over a network growth scenario that appears to have slowed meaningfully." With the stock still up more than 40% from its 52-week lows and trading at P/E of nearly 50, I'd agree with Benchmark and wait for a wider margin of safety before jumping in.
