I've discussed Cineplex Inc. (TSX:CGX) often in the last year or so as I grew increasingly convinced that Cineplex stock was grossly undervalued. And as time has gone on, I have become more and more confident in this company and this stock

Here are three reasons to buy Cineplex stock.

Cineplex stock is cheap

Trading at a mere 13 times next year's earnings, Cineplex stock is undeniably cheap. Just looking at this valuation in isolation, we can see that the stock is inexpensive. If we add to our analysis, this point becomes even more obvious for a couple of reasons.

First of all, Cineplex's business is a very strong cash flow generator. In 2019, Cineplex generated net earnings of $37 million and cash flow from operations of $321 million. In 2023, the company generated net earnings of $138 million and cash flow from operations of $209 million. The most recent quarter was similar, with cash flow from operations that was significantly higher than earnings.

Although recent years have been difficult, the underlying business is a good one at its core. But it seems that investors have forgotten this. I think that Cineplex is quietly proving it. Thus, I think that Cineplex stock's valuation will begin to approach the premium valuation it commanded before the pandemic.

Box office numbers are heating up

The company's recent box office results highlight the growing momentum and positive potential of Cineplex. In its latest quarter, box office revenue came in at 98% of pre-pandemic levels. In November, it came in at $48.9 million, or 94% of pre-pandemic levels and 141% of those of November 2023.

Now that the pandemic and writer's strike are both over, we are beginning to see the power of the movie going experience and Cineplex again. Movies continue to capture audiences and break records, as movie goers increasingly opt for Cineplex's higher margin premium formats such as VIP.

So, we can see that a full recovery to 2019 levels is in the cards. Yet, Cineplex stock trades at a fraction of what it traded at then – more than 60% lower. A true value stock.

A dividend is likely coming soon for Cineplex stock

Lastly, all indications are that it's only a matter of time until Cineplex's dividend gets re-instated. If you recall, in the years before the pandemic, Cineplex stock was considered a dividend stock to own. This was due to the relatively low-risk nature of the business and stability of its results. On top of this, the business is pretty immune to economic troubles, as it's a relatively inexpensive form of entertainment. This all means that Cineplex's business lends itself very well to the dividend model.

This is a fact that Cineplex's management is very aware of. In fact, they have highlighted their intention to pay out dividends in the near future. The criteria for this are the company's balance sheet is in good shape and attendance levels are at 75% to 80% of 2019.

Today, the balance sheet is much-improved and in good shape. In 2023, attendance levels came in at 72% of 2019 levels. And 2024 has seen even better attendance versus last year. As the movie slate continues to improve, attendance levels will likely continue to climb. In my view, we should expect a dividend from Cineplex in the foreseeable future.

Re-instating the dividend would signal that the company has come full circle – survived the pandemic, the writers' strike, and even the threat from streaming services.