Stock talk for the main street investor.

The IMAX Explosion

I can’t believe it took me this long to look into IMAX. After I went to Avatar the weekend after opening weekend and couldn’t get into the IMAX theater there should have been alarms going off in my head. A few things surprised me that weekend.

1. There are tons of 3D and IMAX movies coming out this year. Not just Discovery type movies but real box office movies: Alice in Wonderland, Toy Story 3, Shrek Forever After, The Twilight Saga: Eclipse.

2. Demand for IMAX 3D has been off the charts. Avatar had $150 million in IMAX box office revenue thru Feb 2, an astounding number for a format with under 300 commercial screens.

3. It’s still hard to find an IMAX screen. Most theaters don’t have IMAX and in some locations you have to drive hours just to find one.

What IMAX has is a unique position in a changing movie industry. They’re a component supplier to movie theaters and movie studios which are both looking for a competitive edge. IMAX helps provide that edge with screens that are in higher demand and more technologically advanced than standard screens. They’ve also been forming joint ventures with theaters which gives them upside when IMAX demands higher ticket prices and when movies perform well.

As 3D is refined and movies become more complex the experience will play a key role in consumer buying patterns. If you’re making a decision to go out and experience a movie, wouldn’t you want a the best experience possible? Even if it costs a little more? IMAX can capitalize as theaters realize new movies and customers are going to demand the best experience possible for new high tech movies.

After the Avatar experience and seeing the movies slated for this year I’m convinced theaters will be adding a large number of screens in the next few years. Probably even more than IMAX was projecting at their last presentation in May.

With a stock price of $12.30, IMAX has a high market cap right now at about $766 million on revenues of $106 million in 2008. It’s tough for me to like the stock at that price, especially since 2008 was not a profitable year. If the stock falls a little further I’d be willing to get in. Right now IMAX is trading just over a 21 forward P/E. Not terrible if they can hit their numbers and keep a high growth rate. I’m watching results and waiting for a pullback in the stock price.

Disclosure: The Mayor does not own IMAX. I do have a limit order in to purchase at $11.45.

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