With the market capitalization of Canadian cinema chain operator Cineplex Inc. (TSX:CGX) dropping to unexpectedly low levels of late, the company’s stock has been removed from the TSX index.
This move has not helped the shareholders of this embattled stock. With the stock price now at bargain basement levels, value investors may be enticed and may consider picking up shares as a way to play the economic recovery coming out of this pandemic.
I do agree that Cineplex’s stock does offer investors an incredible amount of leverage to a quick economic recovery. I also think the stock is trading as a call option on survivability or solvency at this point in time.
However, I do think the potential near term headwinds for Cineplex are too strong to justify an investment in this stock right now. Banking on a slow second wave of this pandemic and/or a vaccine to be widely available in the next few months is a bold but dangerous bet, fraught with volatility on both ends of the trade.
Cineplex is a stock I would classify as a value trap for investors at this point in time. I would encourage speculators to consider other pandemic-linked recovery stocks now. Until we know the degree of structural damage to the cinema business, I think value investors should wait on the sidelines with this stock.
Invest wisely, my friends.