The Cineworld (LSE: CINE) share price has rallied over the past few months. The coronavirus vaccine rollout across the UK has ignited investor hopes that the company will soon welcome customers back into its theatres.
However, despite this optimism, I’m staying away from the business for the time being. I think many other UK shares offer a better risk/reward profile.
Cineworld share price headwinds
Cineworld may welcome customers back later this year, but that won’t mean the company’s out of the woods. The business has acquired a considerable amount of debt over the past 12 months. At the end of 2020, the group’s debt mountain stood at more than $8bn.
For some perspective, the company’s current market value is only £1bn ($1.35bn).
According to my analysis, it would take decades for the company to clear its debt load based on these numbers. That tells me no matter what happens to the business over the next 12 months, the Cineworld share price is likely to remain a poor investment in the long term.
As such, I’d focus on other undervalued UK shares instead. Many UK companies have suffered a drop off in sales and revenues over the past year, but few have a much debt as Cineworld. I reckon this should enable these businesses to see a faster recovery. That may make them better investments for 2021.
UK shares for 2021
Two companies that stand out to me as attractive investments in the current market are Reach and Premier Foods. Both businesses have gained in some way from the pandemic.
Newspaper publisher Reach has benefited from a rise in the demand for up-to-date and reliable news throughout the pandemic. The company’s latest trading update revealed a 24.9% increase in digital revenue for the fourth quarter of 2020. The business also surpassed the milestone of 5m online customer registrations in December.
Based on this growth, management informed the market that the company now expects to report earnings ahead of expectations for the full year. However, despite this expansion, the stock continues to trade at a discounted forward price-to-earnings (P/E) multiple of 6.
I think this low valuation, coupled with the firm’s growth potential, could make it a much better buy for a portfolio of UK shares than the Cineworld share price.
Meanwhile, Premier Foods has seen a similar increase in demand for its products. Rising profits have helped the business reduce legacy debts and provide much-needed cash for reinvestment. After nearly a decade of restructuring, it now looks to me as if Premier is finally back on the road to growth.
As such, I’d buy the stock today while it continues to trade at a depressed P/E multiple of less than 11. I’m optimistic the business can continue to reduce borrowings and grow sales in the years ahead, unlike Cineworld, which may continue to struggle with its credit obligations.
