2-Star Stocks Poised to Plunge: IMAX?

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Based on the aggregated intelligence of 140,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, jumbo-movie-screen specialist IMAX (Nasdaq: IMAX) has received a distressing two-star ranking.

With that in mind, let's take a closer look at IMAX's business and see what CAPS investors are saying about the stock right now.

IMAX facts

Headquarters (Founded)

Mississauga, Canada (1967)

Market Cap

$600 million

Industry

Movies and entertainment

Trailing-12-Month Revenue

$134.8 million

Management

CEO Richard Gelfond (since April 2009)

CFO Joseph Sparacio (since August 2007)

Return on Capital (Average, Past 3 Years)

(5.9%)

Cash / Debt

$49 million / $135.7 million

6-Month Return

123%

Highly Rated Entertainment Stocks

Disney (NYSE: DIS)

DreamWorks Animation (Nasdaq: DWA)

CAPS Members Bearish on IMAX Also Bearish on

Palm (Nasdaq: PALM)

Netflix (Nasdaq: NFLX)

CAPS Members Bullish on IMAX Also Bullish on

General Electric (NYSE: GE)

Johnson & Johnson (NYSE: JNJ)

Sources: Capital IQ (a division of Standard & Poor's) and Motley Fool CAPS.

On CAPS, 8.9% of the 1,020 members who have rated IMAX believe the stock will underperform the S&P 500 going forward. These bears include All-Star mdemag, who is ranked in the top 10% of our community, and minnjim1.

Earlier this month, mdemag chucked a few tomatoes at IMAX's financials:

It's a great product; but horrible margins, fluctuating earnings based on the whim of kid's interests, and negative book value. Too many things have to change to justify over $9/share (sustained revenue growth, order of magnitude increase in margins, extra cash). IMAX has a lot of potential, but it's too dangerous right now.

In an earlier pitch, minnjim1 also tapped IMAX as a must-miss stock:

Irrational exuberance has sent the price of IMAX stock up way too high for its fundamentals. Negative profit margin, operating margin, return on assets, net income, even EBITDA and book value are negative. These are not signs of a healthy business.

As for the new theaters and movie deals, the fact is that there are very few IMAX theaters. The new theaters that everyone is gushing about are not really IMAX theaters, they are existing standard-size movie theaters with their screens enlarged slightly, because you can't fit a real IMAX screen into a standard movie theater.

What do you think about IMAX, or any other stock for that matter? Make your voice heard on Motley Fool CAPS today. The CAPS community is waiting to hear your opinions. CAPS is 100% free, so get started!

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Fool contributor Brian Pacampara owns no position in any of the companies mentioned. IMAX is a Motley Fool Rule Breakers recommendation. Disney, DreamWorks, and Netflix are Stock Advisor selections. Disney is also a choice of Inside Value. Johnson & Johnson is an Income Investor pick. The Fool's disclosure policy always gets a perfect score.

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 17, 2009, at 1:52 PM, daveshouston wrote:

    Most of IMAX problems were created before they had a digital delivery system in place and before they had enough theaters to cover their expenses.

    Before digital the huge reels of film were expensive to produce, fragile, and hard to move from location to location. Now with digital all of that is vastly simplified.

    For IMAX to grow and flourish, they must offer an attractive proposition to three different groups: The Hollywood studios, the theater operators, and the public ticket buyers.

    They seem to be covering all three bases now. Digital makes it much easier and less costly for both the studios and the theater owners. The public just loves IMAX movies. I think they've just gotten their act together and it is starting to roll. They do have some financial hangover to work through but the future looks very bright for IMAX. They really have no competition in terms of the big screen.

  • Report this Comment On September 17, 2009, at 1:56 PM, mikecart1 wrote:

    IMAX is the future. With movie ticket prices like $10 now + $10 for popcorn and soda, it is like $20 per person to see the movies. Now I wouldn't know myself since I've had a home projector since 2001 that produces images almost as big as some movie theaters on my wall. But when I have gone to the movies, I know my wallet was crying.

    IMAX should try to take over market share and build more theaters. I'd pay $15 to see a movie in IMAX over $10 to see a movie on the traditional movie screens.

    IMAX is the diamond in the dirt that ain't been found, the underground king that ain't been crowned.

  • Report this Comment On September 17, 2009, at 7:46 PM, cadunce wrote:

    I think that IMAX is an important trend to recognize when it comes to movie theaters. All it takes is some observation of how packed those theaters are, and what sort of films they are attracting to realize this could become a very big deal.

  • Report this Comment On September 19, 2009, at 1:37 PM, cottonthumb555 wrote:

    What if growth of 5.9 per cent of decline would mean moving to a higher average on a 52- week low

    the only reason that comes to mind is the number of screens changing over a 40 hours period would remain the era that has surpassed many in the recent past........

    projection thru reproduction of superimposition still continues to daunt the mind of the hobbists as well

    salil.

  • Report this Comment On September 26, 2009, at 11:50 AM, jwurms wrote:

    Sony Pictures Releasing to Distribute Michael Jackson's THIS IS IT to Digital IMAX(R)

    This will be a huge money maker, and supporting the analysis, that this company is growing and the new digital technology is a money maker.

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