3 Reasons to Trust Bullish Options Volume for Cinemark (CNK)

After being asked to consider the bullish case for movie theater operator Cinemark (CNK), arguably the most natural reaction would be to recoil. After all, CNK stock isn’t exactly what rational investors might call a glaringly compelling market prospect. Most conspicuously, in the trailing five years, shares gave up over 70% of equity value. That won’t inspire confidence anytime soon.

Further, the company’s upcoming fourth-quarter earnings report may have many investors worried. According to Zacks Equity Research, the market expects Cinemark to “deliver a year-over-year decline in earnings on lower revenues when it reports results for the quarter ended December 2022.”

Specifically, the investment research site states that Cinemark “is expected to post quarterly loss of $0.28 per share in its upcoming report, which represents a year-over-year change of -660%.” As well, “[r]evenues are expected to be $587.31 million, down 11.9% from the year-ago quarter.”

If that wasn’t confirmation enough for CNK stock, the bears will also point out that per Barchart’s technical opinion rating, Cinemark ranks as an average 8% weak sell.

Nevertheless, not everything goes against CNK stock. Primarily, Cinemark ranked among the securities covered under Barchart’s screener for unusual stock options volume. Specifically, following the conclusion of the Feb. 21 session, options volume for CNK hit 7,584 contracts against an open interest reading  of 140,549. The delta between the Tuesday session volume and the trailing one-month average volume came out to 280.72%.

Interestingly, call volume hit 7,300 contracts while put volume was only 284. Therefore, the put/call volume ratio came out to 0.04, dramatically favoring the bulls. Moreover, this might not be a one-off oddity as three fundamental catalysts bolster the narrative for CNK stock.

Cinemark Represents Cheap Entertainment

For years, one of the main challenges for CNK stock and other cineplex-related investments centered on the burgeoning streaming entertainment industry. With consumers leveraging the ability to enjoy attractive content on demand, the incentive for going to the movies diminished considerably. However, the COVID-19 pandemic may have altered this paradigm.

As the phenomenon known as revenge travel demonstrated, it’s possible to have too much of a good thing. While streaming services will continue to be popular, they’re also inherently isolating. With the pandemic forcing everyone to shelter in place, the collective cabin fever proved that humans are social creatures. Therefore, the box office serves a critical need.

Just as importantly, Cinemark offers cheap entertainment. Even with inflation, you’re talking about an average movie ticket price of approximately $11. Compare that to the average ticket price ($36) of a Major League Baseball game or for a National Football League game ($200). Suddenly, $11 doesn’t seem so bad at all.

CNK Stock is Cheap From an Investment Standpoint

Another reason to consider CNK stock is that the underlying investment may be discounted against key financial metrics. To be 100% clear, investment resource Gurufocus.com warns that CNK may be a possible value trap. Therefore, it urges readers to think twice before participating. Still, if you accept that Cinemark offers a consumer value proposition from the first point above, CNK could be interesting for the speculator.

Presently, the market prices CNK at a trailing-one-year sales multiple of 0.55. In contrast, the sector median sales multiple is 1.31. As a discount to revenue, Cinemark ranks better than 76.74% of the competition.

Also, CNK trades at 11.04-times free cash flow (FCF). For comparison, the industry median value pings at 13.71. Subsequently, for this metric, Cinemark ranks better than 60% of sector peers. As well, CNK trades at 6.17-times operating cash flow. As a discount to this particular stat, Cinemark ranks favorably compared to 70.16% of its rivals.

Analysts Believe in CNK

Finally, the last reason to trust CNK stock centers on analyst sentiment. In the current month, Barchart notes that Cinemark enjoys a consensus “moderate buy” view. This breaks down as follows: five strong buys, one moderate buy, two holds and one strong sell. Also, it’s a slight improvement from three months ago, when CNK received four strong buys instead of the present five.

Now, according to TipRanks’ coverage of CNK stock, the investment publication notes that in the last three months, Cinemark enjoys a consensus strong buy view. Further, the experts’ average price target stands at $15.80, implying nearly 27% upside potential.

Indeed, the last six analyst assessments all feature “buy” ratings. The least optimistic view comes from Eric Wold of B. Riley Financial, who sees 4.17% upside potential. On the other end, the most optimistic view comes from Wedbush analyst Alicia Reese, who anticipates CNK jumping over 44% higher.

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