IMAX Corporation (NYSE:IMAX) has a unique value proposition; bigger is better! As a leader in motion picture technologies and presentations, the company has grown over the past 45 years to consist of 731 theater systems across 53 countries. Of these, 617 (or 84.4%) are commercial systems, while the remaining 114 (or 15.6%) are institutional systems. As opposed to your traditional movie theater, IMAX Corporation focuses on developing large screens that utilize higher quality resolution (though not higher than the 4K projectors recently being developed by RealD (NYSE:RLD) and sold to theaters across the country recently) and allow a deeper level of immersion into the film than what is typically provided by competitors like Regal Entertainment Group (NYSE:RGC) and Cinemark Holdings (NYSE:CNK).
From a growth perspective, it appears as though the company has found a nice niche in presenting movies on a larger screen. This is illustrated by the company's recent fast-paced growth, which has resulted in its overall network of systems growing 144.5% cumulatively since the start of 2008. The area that the company has grown in the most has been its commercial network, which has seen a 245% increase over the same time. However, how does IMAX Corporation compare to its peers fundamentally? Growth is nice to have, but unstable fundamentals can act to sabotage a company's perceived potential. Is this the case with IMAX Corporation or is it able to maintain this growth in the foreseeable future?
To begin with, let us look at the company's revenue growth. Since the end of its 2008 fiscal year, IMAX Corporation has seen its revenue balloon from $102.7 million to $284.3 million, primarily due to the aforementioned growth in its system. Likewise, net income, which has been very volatile, has moved from negative $33.6 million to positive $41.3 million, for a 2012 net profit margin of 14.5%. Meanwhile, Regal Entertainment Group has seen its revenue meander around $2.8 billion over the past five years and has posted a five-year high net profit margin of 5.1%, while Cinemark Holdings has seen its revenue rise yearly from $1.74 billion in 2008 to $2.47 billion in 2012 and posting a 6.8% net profit margin in 2012.
Although IMAX Corporation is only around 10% the size of both of these big-name competitors, it has been able, somehow, to earn a higher degree of profitability. Even when looking at the free cash flow margin (the free cash flows from operations, less capital expenditures, all divided by revenue), we see that IMAX Corporation (while still being more volatile over the past five years), posted a 2012 free cash flow margin of 21.7%. In juxtaposition, Regal Entertainment Group saw a free cash flow margin of 9.1%, while Cinemark Holdings held third place at 7.1%.
So far, so good for IMAX Corporation. Based on the income statement data, it would appear as though the company comes in first place, while Cinemark Holdings takes second and Regal Entertainment Group places third. However, while IMAX still holds first place in free cash flow margin, second and third places are reversed. But, what about the fundamentals of the companies from a balance sheet perspective?
Looking at the current ratio, which is the company's current assets (like cash, inventories, and receivables) divided by current liabilities (like accounts payable and portions of long-term debt due within the current reporting year), we notice that IMAX Corporation has a 1.14. This means that for every dollar in liabilities due soon, the company has $1.14 with which to meet said liabilities.
This is far from a perfect ratio as some of its current assets cannot be liquidated as quickly as cash to meet short-term obligations, but it is better than Regal Entertainment Group's current ratio of 0.95. However, both companies pale in comparison to Cinemark Holdings, which has a healthy current ratio of 1.66, suggesting that it could most easily meet any upcoming financial obligations.
Finally, we should take into the consideration the debt that each company holds. Currently, IMAX Corporation has no debt, which implies that there is little chance of the company going belly up. On the other hand, Cinemark Holdings has a little over $2 billion in long-term debt. When compared to its equity of almost $1.1 billion, we can deduce that the company is a more leveraged way to play the movie theater business, though its $515.5 million in cash should help to ease investor's concerns a little. Meanwhile, Regal Entertainment Group has about $2.3 billion worth of debt and a negative book value of equity of $697.9 million, making it the most likely to suffer default.
Based on both growth and fundamentals, it would appear as though IMAX Corporation offers the best prospects for the Foolish investor. The only area where the company falls somewhat short is its current ratio, which is alright but lower than what Cinemark Holdings sports. However, the company is trading at a rather high 47 times earnings, which suggests that investors are paying an arm and a leg for its growth prospects, which may give the Foolish investor some incentive to sit by the sidelines and wait for the price to come down or its earnings to rise.
Daniel Jones has no position in any stocks mentioned. The Motley Fool recommends Imax. The Motley Fool owns shares of Imax. 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.