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Regal Entertainment Group (RGC), RealD (RLD): Is IMAX Corporation (USA) (IMAX) Destined for Greatness?

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Investors love stocks that consistently beat the Street without getting ahead of their fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with robust and improving financial metrics that support strong price growth. Does IMAX Corporation (USA) (NYSE:IMAX) fit the bill? Let’s look at what its recent results tell us about its potential for future gains.

What we’re looking for
The graphs you’re about to see tell IMAX Corporation (USA) (NYSE:IMAX)’s story, and we’ll be grading the quality of that story in several ways:

1). Growth: Are profits, margins, and free cash flow all increasing?
2). Valuation: Is share price growing in line with earnings per share?
3). Opportunities: Is return on equity increasing while debt to equity declines?
4). Dividends: Are dividends consistently growing in a sustainable way?

What the numbers tell you
Now, let’s look at IMAX Corporation (USA) (NYSE:IMAX)’s key statistics:

IMAX Total Return Price Chart

IMAX Total Return Price data by YCharts

Passing Criteria 3-Year* Change Grade
Revenue growth > 30% 28.6% Fail
Improving profit margin (26.8%) Fail
Free cash flow growth > Net income growth 4.7% vs. (5.9%) Pass
Improving EPS (10.3%) Fail
Stock growth (+ 15%) < EPS growth 93.8% vs. (10.3%) Fail

Source: YCharts.
*Period begins at end of Q2 2010.

IMAX Return on Equity Chart

IMAX Return on Equity data by YCharts

Passing Criteria 3-Year* Change Grade
Improving return on equity (82.4%) Fail
Declining debt to equity (76.1%) Pass

Source: YCharts.
*Period begins at end of Q2 2010.

How we got here and where we’re going
IMAX Corporation (USA) (NYSE:IMAX) looks like a dud today, as it’s mustered only two out of seven possible passing grades. However, there may be some hope — the company’s revenue growth is close to passing, and an uptick in net income would do much to bring the company’s fundamentals back in line with its share-price growth. But can IMAX put on a blockbuster showing over the next few quarters to justify recent investor optimism? Let’s dig a little deeper to find out.

IMAX Corporation (USA) (NYSE:IMAX) has been aggressively expanding its geographical presence in both domestic and international markets. At the beginning of this year, IMAX inked an agreement with Russia’s Kronverk Cinema to launch three new IMAX theatre systems in Russia, which will give it a presence in all of the top six cinema chains in the country. Additionally, IMAX has also partnered with Indonesian exhibitor Cinema 21 to open eight IMAX theaters across that country, the most populous in Southeast Asia. These partnerships will be, at the very least, a good foot in the door to valuable overseas markets.

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