IMAX

Where we land

IMAX earns its living when the biggest films of the year pull crowds onto its giant screens, and lately those films have been arriving in force. Two years ago its yearly operating profit, the money left after the costs of running the company but before interest and tax, stood at 45m. In the twelve months to June 2026 it reached 95m. That is a real change in the business, not a matter of accounting.

We award it gold. The shares, though, have already done much of the celebrating. They trade at 69 times earnings, meaning a buyer pays that many dollars for each dollar of yearly profit, against a peer median of 15. That price does not simply reward the past two years. It assumes the run continues for years more, and faster than anyone forecasting the company's profits expects. We think the price is ahead of the business.

What the business is

IMAX has two sides. The larger, at 62% of sales, is technology: the cinema systems, their upkeep, and the share of ticket takings IMAX keeps when its screens sit in other companies' cinemas. The other 38% is content: preparing films for its format and distributing them.

The economics are attractive. Of each sale, 58% is left after the direct cost of providing it, the gross margin. Over five years that margin has usually sat around 54%, typically moving about 3 points either way, so today it is at the top of its normal range rather than outside it. After all running costs, 23% of sales remains as operating profit. The reason is structural: once a screen is installed, each extra ticket costs IMAX very little, so a crowded year flows almost straight through to profit.

Why now

In the year to June 2021, with cinemas emptied, IMAX lost 55m at the operating level. A year later it was back in profit, but the next year slipped back to 32m, a reminder of how lumpy this business can be. Since then the line has only climbed, to 45m, then 69m, then 95m. Net profit, what is left for shareholders after interest and tax, has followed the same path from a loss to 41m.

In the past 45 days analysts changed their estimates 19 times, every one upward. IMAX now earns the best operating margin among its peers, and it entered the Conviction 10 this month on that turn and on shares that have been climbing hard. The same peer comparison shows it carrying the highest price by a wide margin, and that tension runs through everything that follows.

The case for

The strongest argument is that the recovery is speeding up rather than running out of breath. Sales grew 14.8% this year, against a yearly pace of 5.8% over three years. A business whose growth is accelerating, and whose extra sales arrive at a very high margin, can lift profit much faster than revenue, which is exactly what the last three years show.

The forecasters have moved the same way. Revisions this one-sided suggest those closest to the numbers keep finding the year better than they had pencilled in, which is how a turn in a business usually shows up before it is fully priced.

The market has responded. News reports described the shares trouncing the market in July and soaring in August, and in October the stock was put on a strong-buy list. On our price data the shares are up 56% over the past year, close to the top of the whole market for share-price strength, and because the improvement has been sustained over twelve months it looks like a genuine move rather than a bounce from a slump.

Where the growth could come from

What drives IMAX now is how many people buy premium tickets for big Hollywood films. Studios are making more of their largest films with IMAX cameras or for its format, and audiences are increasingly willing to pay extra for a premium screen, so a heavy year of such films lifts both sales and IMAX's share of each film's takings. The shares' jumps in July and August came in the heart of the summer season, which fits. This income runs mainly through ticket-sharing on the technology side and remastering and distribution fees on the content side; our figures do not show exactly how much of the total is tied to the box office. Because the screens are already in place, most of it falls straight to profit. That is also the worry: the open question is whether next year's films can match this year's.

The second source is most likely the network itself. Cinema operators keep signing up for new and upgraded systems, and under revenue-sharing deals IMAX keeps a cut of every ticket rather than taking one upfront payment. Each such screen adds high-margin income for years, and a growing base would let earnings rise even in a flat box-office year. Our figures do not separate new installations within the technology side; signings and openings running ahead of closures, with more deals on revenue-sharing terms, would confirm it.

A third possibility is earlier and smaller: filling the quiet weeks between blockbusters with concert films, live sports and music events, and cinema runs of films made by streaming services. On existing screens those empty weeks are close to pure profit, and streaming services choosing cinema releases would open a new supply of films. This most likely sits in content and is small next to Hollywood. The proof would be a streaming-backed film or live event taking as much on IMAX screens as a mid-sized Hollywood release.

The fourth is local-language hits. Home-grown blockbusters in China, Japan, India and elsewhere increasingly play in IMAX, and a single strong local film can make a quarter on its own, making the business less dependent on the Hollywood calendar and on studio strikes or delays. A rising share of yearly takings from local films, led by holiday-season releases in China, would show it.

The case against

Start with the price, because it is extreme. IMAX's peers trade at between 6 and 24 times earnings; IMAX trades at 69. It earns the widest operating margin among them and, on gross margin, is second only to EVS. Yet on our broader view of business quality, every one of those peers ranks above it. Investors are paying the highest price in the group for a company that is not the best business in it.

The gap between that price and the forecasts is the sharpest part of the problem. Even after all the upward revisions, analysts expect earnings a share to move only from 2.17 to 2.23 next year, growth of 2.6%: the optimism is about this year, not next. Against book value, the accounting value of its assets minus its debts, the shares cost 7.8 times. Over the past year the stock has moved towards the expensive end of the whole market, and it is still getting dearer relative to the rest.

The profits are also less impressive than the margins suggest. The five-year median return on investment, the profit made on the money tied up in the business, is only 5.0%. Return on equity, the same idea measured on shareholders' money, is 11.5%. Net margin, at 9.8%, is well under half the operating margin: much of what the screens earn is absorbed by interest, tax and other charges before it reaches owners.

What the price assumes

One way to test a share price is to ask what the business would have to earn for today's price to look reasonable in five years. If the shares stood still and then traded at 18.5 times earnings, the median valuation of every profitable listed company we cover, IMAX would need earnings of 2.74 a share. Getting there requires earnings to compound at 30% a year for five years.

If the recent trend in operating profit simply continued, its own past carried forward rather than a forecast, earnings a share would reach 1.42 in five years, 52% of what the price requires. That trend amounts to growth of about 14% a year, well short of 30%, and next year's forecast is far lower still. Because earnings have been positive but uneven rather than climbing steadily, this comparison of levels is the fairer test, and on it the price asks for roughly twice what the past has delivered.

None of this has slowed the shares, which have risen 39% over six months on our price data. The rise has widened the gap between what the business is doing and what the price assumes.

The other side of the medal

The risk is not that IMAX is a poor business. It is that the price needs earnings to grow 30% a year for five years, while the forecasters expect 3% next year. Every other concern flows from that mismatch.

It matters more here because of how this business earns. A year of blockbusters lifts profit faster than sales, and a thinner year can take it down just as fast, as the dip in 2023 showed. On price against its assets, sales and earnings, the shares are dearer than most of the companies we rate. A price set for a run of exceptional years leaves little room for an ordinary one.

The risk would announce itself first in the films. If next year's big titles open to smaller crowds on IMAX screens, if forecasters who have only raised their numbers begin to trim them, or if the shares' climb stalls without a fresh lift in profits, the distance between a trend of about 14% and the 30% required would stop being an abstraction.

What to watch

The most telling signal is the average take per IMAX screen as next year's films come out. Opening-weekend takings on its screens are reported long before the company's own results and show directly whether the new slate is filling seats as this year's did. A clear drop would leave IMAX still the most profitable of its peers but carrying a price of 69 times earnings with less behind it.

The second is the direction of sales growth. If it slipped from 14.8% back towards its three-year pace of 5.8%, and operating profit stopped climbing, nothing would be left to support a valuation so far above every peer.

Two slower signals would show whether IMAX can grow beyond the strength of a single film year: new screen signings outpacing closures, with more on revenue-sharing terms, and local-language films in China and elsewhere taking a growing share of the box office. Those would make earnings less dependent on Hollywood's calendar, and they are what the current price is quietly counting on.

The numbers

The same industry, for comparison

Research for information, not personal investment advice or a recommendation to buy, sell or hold any security: see Important information. Data as at 31 October 2026.