Small-Cap Stock with Big Screen Appeal: IMAX Corporation

By Bill McNarland On May 7, 2024

The TDR Three Key Takeaways regarding small-cap stocks and IMAX Corporation:

Small-cap stock IMAX impresses with big-screen technology and brand recognition.
IMAX shows potential as a small-cap stock with impressive financial growth.
Small-cap stock IMAX, despite capital intensity, shines with influential technology.

IMAX Corporation (NASDAQ: IMAX) is a Canadian entertainment technology company headquartered in Toronto, Canada that has become synonymous with immersive movie experiences. Despite its high brand recognition, IMAX is surprisingly a small-cap stock with a market capitalization of $862 million. The company’s latest involvement in high-profile movie productions, such as “Dune 2,” has generated excitement among investors, highlighting its growing influence in the film industry.

Founded in 1967, IMAX has a rich history of innovation in the cinema industry. The company was established by Graeme Ferguson, Roman Kroitor, Robert Kerr, and William Shaw, who aimed to create a more immersive movie experience. The first IMAX theater opened in Toronto in 1971, featuring a unique projection system that delivered crystal-clear images on larger-than-life screens. Over the years, IMAX has become a global entertainment technology leader, renowned for its cutting-edge cameras, projection systems, and sound technology. They now trade on the New York Stock Exchange (NYSE) under the ticker “IMAX.” The share price is currently $16.38, and with around 52 million shares outstanding, they have a solid trading volume of about $15 million a day.

Financially, IMAX reported $367 million in revenue over the last twelve months (LTM), which is impressive considering their growth rate of 12% in the past year and a compound annual growth rate (CAGR) of 39.9% over the last three years. This growth, while strong, likely includes some distortions from the COVID-19 pandemic. The global cinema industry is projected to grow at about 5% annually over the next five years, which provides a decent backdrop for IMAX’s future expansion. As a small-cap stock, IMAX presents a unique investment opportunity for those interested in the entertainment industry.

One thing that stood out is that IMAX’s growth is driven by international expansion and increased share of wallet. In “Dune 2,” they achieved a 22% market share, which is remarkable. The company’s share of the global box office has grown from 2.5% in 2017 to 3.2% recently, even with less than 1% of the global screens. At the Morgan Stanley Technology, Media & Telecom Conference, it was pointed out that IMAX cameras are increasingly becoming a key factor in studios’ decision-making processes. Director Denis Villeneuve’s choice to film all of “Dune 2” with IMAX cameras, after the success of “Dune 1” which was partly filmed with the same technology, suggests a trend towards broader adoption of IMAX technology in high-budget film productions. This positions IMAX as a small-cap stock with strong potential.

IMAX operates with a gross margin of 57.5%. While its levered free cash flow is flat due to its capital-intensive business model, it managed to achieve a net income of $27 million. The company’s tangible book value stands at $3.25 per share, which is fairly reasonable for a small-cap stock.

It’s also worth noting that IMAX doesn’t currently pay a dividend, and its credit score is 5.7, which indicates moderate credit risk. Despite this, IMAX remains an intriguing small-cap stock for investors.

The business is impressive, particularly how they’re getting people into IMAX theaters with their cameras. However, capital-intensive businesses make me cautious. While it’s not a definite yes or no for investors, they should be aware of the high capital requirements. As for me, I’d stay on the sidelines for now. But the success of “Dune 2” and the use of IMAX cameras highlight the company’s growing influence in the film industry, which makes it a compelling small-cap stock for investors interested in the entertainment technology sector. If you want to stay up to date with all of TDR’s research and news, subscribe to our daily Baked In newsletter.