Shares of IMAX rose over 12% today when the company announced it would be opening 75 new IMAX theaters in China. Investors and analysts feel that China represents an exciting new customer base that will increase IMAX earnings. Although I do agree with this assessment, I believe that this strategic expansion move should have resulted in a higher share-price jump. So, I am very bullish on IMAX.
What is IMAX?
An IMAX theater provides film viewers with the best possible experience, hands down. The big screen, great quality, and an unbelievable sound system make viewers feel like they are actually in the film. In turn, people are willing to pay more to watch movies in an IMAX theater. These higher prices leads to big time profits.
IMAX makes its money by leasing its theaters out to third parties and by taking a very handsome cut of the theaters' revenue. All in all, IMAX's business operations have led to operating and profit margins of over 20% and 40%, respectively (these are really high margins!). In addition to profitability, IMAX's revenue and earnings are growing at very fast paces. This combination of product quality, growth, and profitability should lead to great returns for investors.
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