IMAX (NASDAQ:IMAX) is synonymous with gigantic movie screens and outstanding sound quality that consumers are willing to pay a premium price to experience. The company makes its greenbacks in two primary areas -- equipment installations in new theaters, and films. The "systems" business -- which includes the entire projecting and six-channel sound system, the specially coated screens, and maintenance -- accounted for 65.5% of the company's revenue for the past nine months and carried a healthy 55% operating margin. Films, meanwhile, account for 19.1% of sales but only 3.2% of operating profits.

Business is booming
What's really different about IMAX today is that the business is growing rapidly. The company installed 14 systems in the fourth quarter -- a record for any quarter in the company's history -- and 34 systems for the year. That's up sharply from the 21 installed in 2004.

System orders per year have risen consistently, from 25 in 2003 to 36 in 2004 to 45 in 2005. That's a trend that the IMAX of old could not string together.

And that trend should continue. IMAX has become an outlet of choice for highly anticipated Hollywood movies. (More on that to follow.) In 2006, in fact, the company expects to have a new major Hollywood release every six to eight weeks. This steady steam of high-value product, a company dream finally come true, should provide the driving force for more system sales.

How big are the Hollywood movies being shown on the IMAX screens? Warner Brothers, a unit of Motley Fool Stock Advisor recommendation Time Warner (NYSE:TWX), released Batman Begins, Charlie and the Chocolate Factory, and Harry Potter and the Goblet of Fire in IMAX format the same day they made their appearance in conventional theaters, and each of those movies grossed more than $200 million in total box office revenues in the United States. The Harry Potter installment, which has pulled in some $888 million worldwide, also set an IMAX 2-D record by pulling in $16 million during its run at 89 screens around the globe.

The opportunity
Eighty-nine screens? Is that all IMAX has? Well, no. It has 261 screens in 38 countries, but roughly half of them are in locations such as museums, planetariums, and science centers. The exciting news is that since 2003, IMAX has been marketing a smaller state-of-the-art MPX system that fits a traditional multiplex setting. Motion-picture-theater owners such as AMC and National Amusements -- the latter being the parent company of Viacom (NYSE:VIA) and CBS (NYSE:CBS) -- are testing these systems, and 2006 could be a breakout year for their sales.

Critics will note the AMC deal is for five screens -- not a lot when you consider that AMC has more than 2,500 screens in its portfolio. But this is a joint venture in which AMC and IMAX will share in the cost and profitability of the theaters that have the big screens. This deal thus gives IMAX a greater percentage of a film's revenue and positions the company, potentially, for more rapid earnings growth. It bears watching.

The film division's profitability is already on the rise. In the third quarter, it accounted for 18% of operating profits -- this after posting a $563,000 loss during the first six months of 2005.

System and film profits should be strong in the fourth quarter, too. Although results have not been announced, the company has already said it will meet or exceed its guidance of $0.35 to $0.38 per share.

IMAX also inked a deal last September with General Electric's (NYSE:GE) Commercial Finance unit to provide more financing options that, potentially, will reduce the start-up costs for commercial clients. It's just one more sign, along with IMAX tickets being sold by MovieTickets.com, that IMAX's opportunities are multiplying.

Add it up
From the products offered, to financing, to joint ventures, to earnings exceeding guidance, IMAX is making a transition. Consider this: The company is selling for 20.8 times expected 2006 earnings, and analysts expect the company to grow earnings 25% annually for the next five years. That's a value price for that kind of growth rate!

Plus, it's a Motley Fool Rule Breakers selection -- a newsletter that looks for the market's ultimate growth stocks.

IMAX is hardly causing a stir with investors. For now, the positive moves within the company are probably weighted down by memories of its past inability to create positive long-term trends. Investors, though, would be wise to look carefully at the evolving opportunities, not to mention its Rule Breaking recommendation.

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Fool contributor W.D. Crotty does not own any shares in the companies mentioned. Click here to see The Motley Fool's disclosure policy.