Cineworld (LSE: CINE) shares are once again in the spotlight and investors have been piling into the stock. The FTSE 250 firm had a stellar run in November, and December looks promising too.
But will Cineworld shares continue to rise? I believe investors need to know the following five things.
#1 – The bounce
Covid-19 completely decimated Cineworld’s business. The company had to close its cinemas to the public during the pandemic, which devastated revenue.
Cineworld shares seem to have bounced on the news of a Covid-19 vaccine. The UK has now approved the Pfizer coronavirus vaccine and a mass vaccination rollout is expected. That raises hopes of the world getting back to normal and the company opening its venues fully.
Any further news relating to the coronavirus vaccine is likely to be positive for Cineworld shares and I expect the share price to rise in the short term.
#2 – Debt pile
Even before the pandemic, investors were concerned over Cineworld’s debt pile. Last month the company secured a debt lifeline worth $750m. Its lenders agreed to waive its debt covenants until June 2022, in addition to it securing $450m in new loans. This means that, at present, the company has a total gross debt financing of $4.9bn.
While this new finance provides it with additional liquidity during a turbulent period, it still adds to its debt woes. At some point, the cinema operator will have to pay this money back and as a result, I do not expect Cineworld to recover any time soon.
#3 – Heavily shorted
Looking at shorttracker.co.uk, eight investment houses have shorted Cineworld shares. This means that those investors are betting on the share price falling.
The total short interest is 8.8%, which makes it the third most shorted stock in the UK. This large short position indicates that there are several investors who are not confident about Cineworld’s future.
#4 – Changing habits
Many consumers now watch films and shows through subscription services such as Netflix and Disney. Such services were a winner during Covid-19 and I am concerned that the pandemic will encourage studios to release more movies on these direct-to-consumer platforms, thus cutting out the cinema operator.
Some big movies have been delayed. The latest James Bond, No Time To Die, has been put back to April 2021, for instance. There were even reports of this film being released directly via streaming services, with Apple TV and Netflix in the mix. While watching movies at the cinema doubles up as a social activity, the pandemic may have caused a long-term behaviour shift. Perhaps it is a sign of things to come.
#5 – Director deals
Other than former Chairman Anthony Bloom purchasing £230k worth of Cineworld shares at 28p in March, there have not been many director deals. With the share price so low, I would have expected senior management to be snapping up the shares, especially as they’ve recently been rising.
The lack of director deals does not fill me with confidence, as it indicates to investors that management does not believe the company is undervalued.
Cineworld shares: would I buy?
I expect Cineworld shares to rise in the short term on hopes of the world returning to pre-coronavirus normality. But I am not convinced. Once some kind of normality resumes, still faces debt problems and possible structural challenges. I will not be buying.
