The lights went dark in IMAX
A year after Avatar pushed IMAX into the mainstream and gave the company momentum to sign new theaters, a slow quarter resulted in a big drop in revenue and earnings. Total revenue fell 40% to $45.2 million in the quarter, and earnings per share fell from $0.40 to a loss of $0.02 per share. Adjusted earnings per share fell to $0.04 below the $0.11 analysts expected.
All of this normally means a stock gets pummeled, but IMAX was up 6% yesterday because the company is accelerating growth plans. After signing 101 new theater deals in the first quarter, it was time to step up from 80-90 installations a year to 115-125 for 2011. Since theaters are the cash cow of IMAX, the faster the company can install theaters, the better.
This is where 3-D competitor RealD
In the next two months, we have some big movies coming to IMAX that should drive results. Disney's
Foolish bottom line
The quarter may have been a disappointment, but faster growth of IMAX theaters is a positive for shareholders. Shares are becoming expensive at 64 times trailing earnings, but considering the operating leverage IMAX gets from adding screens and growth opportunities internationally, I'm not eager to sell shares today.
IMAX is a Motley Fool Rule Breakers pick. Walt Disney and DreamWorks Animation SKG are Motley Fool Stock Advisor recommendations. 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.