Cineworld share price zooms past 100p! Would I buy it now?

The Cineworld share price has made impressive gains in the past week. But can they be sustained or will it start falling once again?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

In hindsight, the pandemic’s impact on the stock market may appear quite short-lived. Consider Cineworld (LSE: CINE). Earlier this week, the Cineworld share price zoomed past 100p and has stayed at these levels since. 

Let me put this in perspective. 

Just before the stock market rally started in November last year, the Cineworld share price was at around 25p. It has risen by more than four times since. Let me give even more perspective. 

The Cineworld share price is now back to its pre-stock market crash levels of March, 2020. In other words, if it maintains these levels, the company’s share would have successfully managed to put the stock market crash behind it. 

Going by how much CINE has suffered during the pandemic, this would have appeared unlikely even six months ago. This is why I said at the beginning that the stock market impact of Covid-19 may appear short-lived when we look back. 

Positives for the Cineworld share price

But we do not know that for certain yet. When the economy reopens, we will know for sure how far business comes back to life. 

I am optimistic though. Over 70% of Cineworld’s revenues are generated in the US. The US economy grew by a strong 4.1% in the last quarter of 2020. Its growth boom is expected to continue this year as well. If President Biden’s fiscal stimulus of $1.9trn comes in, the surge in the economy could be well beyond what is expected now. 

Where the money goes is also important. As long as it finds its way to low-to-middle income households, as is expected, spending could increase substantially. 

This in turn, would be good for entertainment companies like Cineworld. Cinema is a relatively inexpensive form of entertainment, which goes in its favour. 

Moreover, there is a lot of pent-up-demand for recreation. A good example of this is the surge in holiday travel bookings easyJet saw as soon as the phased end to the UK’s lockdown was announced recently. 

What can go wrong

The US fiscal stimulus plan isn’t certain, nor is it certain that it will have the intended effect. And a year of pandemic living, including uncertain income may encourage us to focus more on saving, which could have a negative effect on Cineworld’s profits.

I am also concerned Cineworld’s debt levels. They were already high pre-pandemic and are higher still now. I think it is safe to assume that it will be a while before it can pay off its loans. The good thing, though, is this. I reckon creditors will be understanding right now. And if we are talking of a roaring ‘20s comeback, this may well be the best time there is for Cineworld to get out of its funk and get its finances back on track.

But I think it is important to remember that even pre-Covid 19, the Cineworld share price was falling. I think it is time to start thinking about why it got into that position again. 

The takeaway

I think it would be beneficial in this case to check share price forecasts given the already sharp run-up in share price. I am making some calculations of my own right now to see how far the Cineworld share price might go.

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.

Manika Premsingh owns shares of easyJet. 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.

More on Investing Articles

Photo of a man going through financial problems
Investing Articles

2 dividend shares I’d avoid like the plague in today’s stock market

The UK stock market is full of high-yield dividend shares that could equate to a steady stream of passive income.…

Read more »

Abstract bull climbing indicators on stock chart
Investing Articles

£17,000 in savings? Here’s how I’d aim to turn that into a £29,548 annual second income!

Generating a sizeable second income can be life-enhancing and can be done from relatively small investments in high-dividend-paying stocks.

Read more »

Investing Articles

With as little as £300 a month invested, this stock could net £16,000 a year in passive income

Putting a few hundred pounds each month into the stock market could eventually generate a five-figure annual passive income, this…

Read more »

Black woman using loudspeaker to be heard
Investing Articles

This dividend stock could pop next week!

This dividend stock happens to have one of the biggest dividend yields I've come across -- 10.7% -- but I'm…

Read more »

Investing Articles

Up 81%, can this FTSE 100 turnaround share keep surging?

This recovering retailer has been one of the FTSE's greatest performers over the past year. Royston Wild considers whether it…

Read more »

Happy couple showing relief at news
Investing Articles

£10,000 in savings? I’d buy 4 passive income shares to target a £100 per week second income!

By buying passive income shares today, I have a great chance to eventually make life-changing wealth. Here's how I'd invest…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

I think this may be an unmissable chance to buy an oversold UK share before it rallies hard

Harvey Jones piled into this beaten down UK share because it looks cheap and offers a sky-high yield. Now he's…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

How I’d invest £500 a month in shares to target a £29,000 second income

Investing in shares is a tried-and-tested way to build a second income. Our writer explains how he’d do it, starting…

Read more »