IMAX (IMAX)

Premium cinema technology company IMAX (NYSE:IMAX) reported revenue ahead of Wall Street’s expectations in Q4 CY2025, with sales up 35.1% year on year to $125.2 million. Its non-GAAP profit of $0.58 per share was 22.9% above analysts’ consensus estimates.

Company Overview

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.

The sector faces structural headwinds from declining linear TV viewership, shifts in advertising spend toward digital platforms, and ongoing challenges in monetizing print and broadcast content. However, for companies that invest wisely, tailwinds can include AI, the power of which can result in more personalized content creation and more detailed audience analysis. These can create a flywheel of success where one feeds into the other. Still there are outstanding questions around AI-generated content oversight, and the regulatory framework around this could evolve in unseen ways over the next few years.

IMAX competes with premium cinema format providers like Dolby Laboratories' Dolby Cinema (NYSE:DLB), 4DX by CJ 4DPLEX, and ScreenX. In the broader theatrical exhibition space, it also faces competition from major theater chains with their own premium large format offerings, such as AMC's (NYSE:AMC) Dolby Cinema and PRIME at AMC, and Regal's RPX.

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years.

With $410.2 million in revenue over the past 12 months, IMAX is a small player in the business services space, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and numerous distribution channels. On the bright side, it can grow faster because it has more room to expand.

As you can see below, IMAX grew its sales at an incredible 24.5% compounded annual growth rate over the last five years. This shows it had high demand, a useful starting point for our analysis.

Long-term growth is the most important, but within business services, a half-decade historical view may miss new innovations or demand cycles. IMAX’s recent performance shows its demand has slowed significantly as its annualized revenue growth of 4.6% over the last two years was well below its five-year trend.

This quarter, IMAX reported wonderful year-on-year revenue growth of 35.1%, and its $125.2 million of revenue exceeded Wall Street’s estimates by 3.8%.

Looking ahead, sell-side analysts expect revenue to grow 7.2% over the next 12 months, an improvement versus the last two years. This projection is commendable and implies its newer products and services will spur better top-line performance.

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

IMAX has done a decent job managing its cost base over the last five years. The company has produced an average operating margin of 10.9%, higher than the broader business services sector.

Looking at the trend in its profitability, IMAX’s operating margin rose by 16.2 percentage points over the last five years, as its sales growth gave it immense operating leverage.

This quarter, IMAX generated an operating margin profit margin of 19.3%, up 9 percentage points year on year. This increase was a welcome development and shows it was more efficient.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

IMAX’s full-year EPS flipped from negative to positive over the last five years. This is a good sign and shows it’s at an inflection point.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

IMAX’s EPS grew at an astounding 23.8% compounded annual growth rate over the last two years, higher than its 4.6% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

We can take a deeper look into IMAX’s earnings quality to better understand the drivers of its performance. IMAX’s operating margin has expanded over the last two years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; interest expenses and taxes can also affect EPS but don’t tell us as much about a company’s fundamentals.

In Q4, IMAX reported adjusted EPS of $0.58, up from $0.27 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects IMAX’s full-year EPS of $1.44 to grow 16.7%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

IMAX has shown impressive cash profitability, giving it the option to reinvest or return capital to investors. The company’s free cash flow margin averaged 7% over the last five years, better than the broader business services sector.

Taking a step back, we can see that IMAX’s margin expanded by 25.7 percentage points during that time. 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 clocked in at $27.96 million in Q4, equivalent to a 22.3% margin. This result was good as its margin was 21.7 percentage points higher than in the same quarter last year, building on its favorable historical trend.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

IMAX historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 4.1%, lower than the typical cost of capital (how much it costs to raise money) for business services companies.

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. This is a good sign, and if its returns keep rising, there’s a chance it could evolve into an investable business.

IMAX reported $151.2 million of cash and $278.6 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $165.8 million of EBITDA over the last 12 months, we view IMAX’s 0.8× net-debt-to-EBITDA ratio as safe. We also see its $2.14 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was good to see IMAX beat analysts’ EPS expectations this quarter. We were also glad its revenue outperformed Wall Street’s estimates. Zooming out, we think this quarter featured some important positives. The stock traded up 5.5% to $38.51 immediately after reporting.

Updated: February 25, 2026 at 11:54 PM EST

When considering an investment in IMAX, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

For starters, its revenue growth was exceptional over the last five years. And while its subscale operations give it fewer distribution channels than its larger rivals, its rising cash profitability gives it more optionality. Additionally, IMAX’s expanding adjusted operating margin shows the business has become more efficient.

IMAX’s P/E ratio based on the next 12 months is 21.9x. While this valuation is fair, the upside isn’t great compared to the potential downside. We're fairly confident there are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $44.09 on the company (compared to the current share price of $37.90).