Annual Checkup -- IMAX

It was an interesting way to end the year for Imax (IMAX -- free RT quote). They had two big moneymakers on the Hollywood side of their offerings in Harry Potter and the reprise of Polar Express, and they've got impressive sounding direct-to-Imax offerings in last summer's Magnificent Desolation moonwalk film and the upcoming star power for their undersea 3D film with Johnny Depp and Kate Winslet, but the stock recently took a nose dive after an analyst downgraded them on reduced expectations for new installation growth among midsize commercial theater operators. As I wrote a few weeks ago, I'm not too worried about the possible reluctance of those small operators -- Imax is so early in their buildout of theaters and has such a strong order backlog that it's going to be a while before they need small multiplex operators to sign on in order to keep their growth rate up. I like that Imax is doing extremely well with international installation growth and that those overseas theaters are proving to be huge draws, whether it's in Israel or Europe or Korea with huge crowds gathering, or with their new deals to install theaters in South America, India and China. It's true that Imax continues to garner most of their cash flow from the installation of new theaters, but with a relatively modest valuation for their growth rate and a clear demand for the product and a focus on remastering Hollywood hits for the mega screen, I think they've got a good future. This is definitely a speculative bet, and I'm not planning to add any more to my position unless the valuation gets extraordinarily out of wack, but I plan to hold and see how this new generation of the Imax story plays out around the world.

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