IMAX has had an impressive run over the past six months as its shares have beaten the S&P 500 by 33.4%. The stock now trades at $41.26, marking a 38.5% gain. This was partly thanks to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Is it too late to buy IMAX? Find out in our full research report, it’s free.
Why Is IMAX a Good Business?
Originally developed for World Expo '67 in Montreal as an innovative projection system, IMAX (NYSE: IMAX) provides proprietary large-format cinema technology and systems that deliver immersive movie experiences with enhanced image quality and sound.
1. Skyrocketing Revenue Shows Strong Momentum
A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Thankfully, IMAX’s 24.5% annualized revenue growth over the last five years was incredible. Its growth beat the average business services company and shows its offerings resonate with customers.
2. Increasing Free Cash Flow Margin Juices Financials
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
As you can see below, IMAX’s margin expanded by 24.3 percentage points over the last five years. This is encouraging, and we can see it became a less capital-intensive business because its free cash flow profitability rose more than its operating profitability. IMAX’s free cash flow margin for the trailing 12 months was 20.8%.
3. New Investments Bear Fruit as ROIC Jumps
ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Fortunately, IMAX’s ROIC has increased significantly over the last few years. its rising ROIC is a good sign and could suggest its competitive advantage or profitable growth opportunities are expanding.
Final Judgment
These are just a few reasons why we're bullish on IMAX, and with its shares beating the market recently, the stock trades at 24.3× forward P/E (or $41.26 per share). Is now the right time to buy? See for yourself in our comprehensive research report, it’s free.
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