Lions Gate Continues to Soar on "Hunger Games" Anticipation; Time to Sell?

Back in February, I wrote a piece detailing the multiple catalysts that would likely push shares of Lions Gate Entertainment LGF higher during the first part of 2012. The most significant of these catalysts is the March 23 box office opening of teen sci-fi blockbuster "The Hunger Games," the first film installment of a book trilogy written by Suzanne Collins. Lions Gate has worldwide distribution rights to the film, and the stock has been going absolutely crazy into the run-up to its theater release. On Tuesday, LGF shares surged 7.23% to $15.28 and then added another 3.21% in the after hours. Over the last 3 months, LGF stock has jumped nearly 87% and the shares are up more than 117% during the last 6 months. Much of the activity in the name is due to the considerable buzz attached to "The Hunger Games." According to a poll done at EntertainmentWeekly.com, the film is the most anticipated release of 2012. On Tuesday, online ticket company Fandango announced that the movie had sold out nearly 2,000 screens in pre-sale. Furthermore, Fandango said that "Hunger Games" is currently accounting for 92 percent of its daily sales, and has overtaken the first "Twilight" film's pre-sales numbers. The film is on track to break into the top five Fandango ticket sellers of all time. Currently, the movie is projected to rake in around $85 million in its opening weekend, but whispers in Hollywood and on Wall Street are suggesting that the real number could rise to $130-140 million. That is huge! Critics who have already viewed the movie are giving it overwhelmingly positive reviews, with the film registering a 91 percent positive rating on Rotten Tomatoes. The site also indicates that 98% of prospective audience respondents want to see the movie. GIven the run-up in LGF shares into this release, however, it may be very, very risky to hold onto a full position over the weekend. In fact, it is time to take profits. The stock, driven by all of the buzz surrounding "Hunger Games," has gotten very frothy heading into Friday's premiere. The next couple of days should provide a good opportunity for traders to liquidate their long holdings in LGF. This is a classic "buy the rumor, sell the news" play, and with the stock more than doubling over the last 6 months, now is not the time to get greedy. The same can be said for interested traders and investors who have not taken advantage of the run-up in the name. It is not likely a wise decision to chase LGF from the long side into the film's opening weekend. The Street is now looking for huge upside to initial sales projections, and if this whisper number is not met, the stock could get punished on Monday. Expectations are now sky high for "Hunger Games," and this has negatively skewed the risk/reward in the name. Clearly, however, LGF was a terrific event-driven idea before all of the current hype and expectations were priced into the shares. Kudos to those who have been enjoying the ride over the last few months. With the chart turning parabolic into the film's opening weekend and sitting at new all-time highs, LGF is now setting up for a major dose of profit taking and cautious traders will want to head for the exits tomorrow morning. While loading up on more LGF at current levels looks extremely risky, a number of theater stocks have been making nice moves in anticipation of "Hunger Games." Names that traders may want to keep on their radar for the rest of this week and next include Carmike Cinemas CKEC, which rose 4.23% on heavy volume Tuesday, Cinemark Holdings CNK, and Regal Entertainment RGC.