Watching IMAX

Big-screen projection pioneer IMAX (NASDAQ:IMAX) today announced the sale of three retrofit systems. These systems are designed to allow the traditional 35mm-film using, mall-based multiplex theater operators to enter the IMAX business in a more cost-effective way. Will this finally push IMAX over the top?

Mall theaters are a prime target now that movie studios like Time Warner's (NYSE:TWX) Warner Brothers are releasing big-budget movies simultaneously in traditional and IMAX format. The allure of the latest Matrix installment sent IMAX shares to $10.40 in November -- ahead of the movie release. Today's open of $8.08 suggests that the market has a more sober view today.

One reason to see an IMAX film, other than the large screen, is the crisp, clear picture. That advantage may fade with the advent of digital projectors, as chips from Texas Instruments (NYSE:TXN) and Qualcomm (NASDAQ:QCOM) enable a new generation of theater projection systems that offer bright, clear, sharp, and amazingly steady pictures -- not to mention, crystal clear digital sound, too.

IMAX is clearly trying to establish a beachhead with Hollywood products. The next Harry Potter will be released in IMAX format, as will sequels to Sony (NYSE:SNE) and Marvel's (NYSE:MVL) team-up Spider-Man, and DreamWorks' Shrek.

These movies should set box office records for IMAX, but what about the stock? Yes, IMAX has an opportunity with mall-based systems and some outstanding films in the pipeline. At the same time, new technologies and digital projectors promise to bring a much-improved movie experience to the traditional theater.

Put it together, and it might be best to take a wait-and-see approach on IMAX. At 20 times 2004 earnings this one looks fairly priced -- at least until longer-term profitability can be established.

Time Warner and Marvel are both David Gardner top picks in David and Tom Gardner's Motley Fool Stock Advisor . W.D. Crotty loves movies and is no stranger to IMAX. W.D. owns Disney and frequents the Motley Fool discussion boards. For a 30-day free trial to the discussion boards, click here .