The Cineworld share price crashes 15%! Is the company doomed?

The Cineworld Group plc share price (LON:CINE) is crashing again. Paul Summers thinks anyone thinking of buying now is taking a huge gamble.

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The Cineworld (LSE:CINE) share price was down heavily this morning as the battered cinema owner announced its latest set of interim results to the market.

With all of its sites and screens closed for much of the period, we already knew the numbers wouldn’t be pretty. But what’s got investors even more worried?

Cineworld’s share price tumble

Group revenue came in at $712.4m in the first half of 2020. This was just a third of what the company made over the same period in 2019. Unsurprisingly, this led it to report a whopping pre-tax loss of over $1.6bn, compared to a profit of almost $140m the year before. 

CEO Mooky Greidinger was doing his best to keep spirits up, highlighting that the company had taken steps to reduce costs where possible. These included placing employees on furlough and suspending the dividend. The questionable acquisition of Canada’s Cineplex chain was also shelved (although lengthy legal battles now look likely). 

Mr Greidinger also suggested that the company’s “steady performance” since reopening (supported by the release of director Chris Nolan’s latest film Tenet) was a testament to his belief that there is a “significant difference” between watching a movie in the cinema and watching it at home.

Considering the quality of home cinema systems available to consumers these days, I’m not sure I would agree. 

Trouble ahead

As expected, the Cineworld share price has been very volatile since markets tanked earlier in the year. Had you bought in March, you’d still have more than doubled your money. Had you bought in June, the value of your stake would now be worth less than half what it was. That’s not the sort of volatility that we at Fool UK like to get involved with. 

Can it recover? I’m not exactly optimistic. As you might expect given the recent spike in infections, Cineworld said that there could be “no certainty as to the future impact of Covid-19″ on the company. 

What we do know is that the mid-cap faces a huge number of uncertainties ahead.

Today, almost 75% of Cineworld’s sites (561 out of 778) have reopened. The vast majority of those still to invite movie-lovers back through their doors are located in the US (where the company makes most of its money). Naturally, further lockdowns, be they national or local, could force their closure again. In such a scenario, Cineworld would likely be forced into another cash raise to complement the $360.8m additional liquidity raised in the first half. 

There are other problems to consider. Tightened restrictions would also hit the film slate with studios forced to suspend production. In addition to this, studios will likely wish to postpone the release of completed movies once again to protect their investments. Alternatively, some may bypass the silver screen completely and make their latest films available on streaming services. This is precisely what Disney has done with its latest movie, Mulan.

All this before I’ve even mentioned that the company still has an awful debt burden to deal with.

Bottom line

The Cineworld share price could go anywhere from here. As such, anyone thinking of buying now should see it for what it is: a gamble, not an investment.

That’s not a way to consistently make money in the markets. I think Fools should look elsewhere.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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