Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Is IMAX's Stock Cheap by the Numbers?

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

Numbers can lie -- but they're the best first step in determining whether a stock is a buy. In this series, we use some carefully chosen metrics to size up a stock's true value based on the following clues:

  • The current price multiples
  • The consistency of past earnings and cash flow
  • How much growth we can expect

Let's see what those numbers can tell us about how expensive or cheap IMAX (Nasdaq: IMAX  ) might be.

The current price multiples
First, we'll look at most investors' favorite metric: the P/E ratio. It divides the company's share price by its earnings per share (EPS) -- the lower, the better.

Then, we'll take things up a notch with a more advanced metric: enterprise value to unlevered free cash flow. This divides the company's enterprise value (basically, its market cap plus its debt, minus its cash) by its unlevered free cash flow (its free cash flow, adding back the interest payments on its debt). Like the P/E, the lower this number is, the better.

Analysts argue about which is more important -- earnings or cash flow. Who cares? A good buy ideally has low multiples on both.

IMAX has a P/E ratio of 34.0 and an EV/FCF ratio of 44.0 over the trailing 12 months. If we stretch and compare current valuations to the five-year averages for earnings and free cash flow, IMAX has a negative P/E ratio and a five-year EV/FCF ratio of 296.5.

A one-year ratio under 10 for both metrics is ideal. For a five-year metric, under 20 is ideal.

IMAX is zero for four on hitting the ideal targets, but let's see how it compares against some competitors and industry mates. 


1-Year P/E

1-Year EV/FCF

5-Year P/E

5-Year EV/FCF






Dolby Laboratories (NYSE: DLB  )





Cinemark Holdings (NYSE: CNK  )





Regal Entertainment Group (NYSE: RGC  )





Source: Capital IQ, a division of Standard & Poor's; NM = not meaningful.

Numerically, we've seen how IMAX's valuation rates on both an absolute and relative basis. Next, let's examine...

The consistency of past earnings and cash flow
An ideal company will be consistently strong in its earnings and cash flow generation.

In the past five years, IMAX's net income margin has ranged from -32.1% to 21.7%. In that same time frame, unlevered free cash flow margin has ranged from -7.6% to 16.5%.

How do those figures compare with those of the company's peers? See for yourself:

Source: Capital IQ, a division of Standard & Poor's; margin ranges are combined.

Additionally, over the past five years, IMAX has tallied up one year of positive earnings and two years of positive free cash flow.

Next, let's figure out...

How much growth we can expect
Analysts tend to comically overstate their five-year growth estimates. If you accept them at face value, you will overpay for stocks. But while you should definitely take the analysts' prognostications with a grain of salt, they can still provide a useful starting point when compared to similar numbers from a company's closest rivals.

Let's start by seeing what this company's done over the past five years. In that time period, IMAX has put up past EPS growth rates of 22.8%. Meanwhile, Wall Street's analysts expect future growth rates of 23.2%.

Here's how IMAX compares to its peers for trailing five-year growth (Cinemark's past growth rate is meaningless):

Source: Capital IQ, a division of Standard & Poor's; EPS growth shown.

And here's how it measures up with regard to the growth analysts expect over the next five years:

Source: Capital IQ, a division of Standard & Poor's; estimates for EPS growth.

The bottom line
The pile of numbers we've plowed through has shown us how cheap shares of IMAX are trading, how consistent its performance has been, and what kind of growth profile it has -- both on an absolute and a relative basis.

The more consistent a company's performance has been and the more growth we can expect, the more we should be willing to pay. We've gone well beyond looking at a 34.0 P/E ratio.

As you can see by the numbers, IMAX is a growth stock at a growth stock price. For more on IMAX, read fellow Fool Rick Munarriz's "This Week's 5 Smartest Stock Moves" column.

If you find IMAX's numbers compelling, don't stop. Continue your due diligence process until you're confident that the initial numbers aren't lying to you.

Interested in reading more about any of these stocks? Add them to My Watchlist to find all of our Foolish analysis.

Anand Chokkavelu doesn't own shares in any company mentioned. IMAX is a Motley Fool Rule Breakers pick. Dolby Laboratories is a Motley Fool Stock Advisor recommendation. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (2) | Recommend This Article (3)

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 December 02, 2010, at 9:21 AM, Gonzhouse wrote:

    "IMAX is a growth stock at a growth stock price", this is exactly my feeling with IMAX. I have large positions at an avg price of 6; the stock is around $26-28 so that made it a terrific GROWTH story. But at current prices, the days of that kind of appreciation are probably over. I'm thinking about partial liquidation because there are other companies with greater growth prospects.

  • Report this Comment On December 07, 2010, at 1:04 PM, Helsingboy wrote:

    Hi Anand, I'm not clear on how you can say that "the pile of numbers you have plowed through have shown how cheap shares of IMAX are trading". Which numbers would indicate this?

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1385477, ~/Articles/ArticleHandler.aspx, 5/26/2016 1:20:44 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 4 hours ago Sponsored by:
DOW 17,851.51 145.46 0.82%
S&P 500 2,090.54 14.48 0.70%
NASD 4,894.89 33.84 0.70%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

5/25/2016 4:02 PM
CNK $35.90 Up +0.01 +0.03%
Cinemark Holdings,… CAPS Rating: *****
DLB $46.25 Up +0.18 +0.39%
Dolby Laboratories CAPS Rating: ****
IMAX $32.89 Up +0.12 +0.37%
Imax CAPS Rating: *****
RGC $20.95 Down -0.05 -0.24%
Regal Entertainmen… CAPS Rating: ***