Should I buy Cineworld shares at 82p?

Cineworld shares are trading below 90p. So is now a buying opportunity? Here I share my analysis of the cinema operator.

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Cineworld (LSE: CINE) shares are currently trading around the 82p mark. The stock did pass the 100p threshold earlier this year, but the share price has been declining since then.

I’m not tempted to buy Cineworld shares just yet. While the easing of lockdown restrictions is certainly good for the cinemas operator, I still have concerns, which I’ll cover now.

Most shorted stock

I regularly track which UK stocks are being shorted. This is just a fancy way of saying investors are betting that a particular share price is going to fall. So if a company has a high short position, it means that investors are negative on its future prospects and don’t expect the stock to rise.

With this in mind, Cineworld shares have a short position of 7.4%. To put this in perspective, according to shorttracker.co.uk, this makes it currently the most shorted stock on the London Stock Exchange. In fact, what I find concerning is that the short position has been increasing over the past few months.

As I said, Covid-19 restrictions have eased somewhat. So naturally, I’d think this would be positive for Cineworld shares. But this hasn’t been the case. And the fall in the stock price could be explained by the increasing negative sentiment and short position.

Broker views

Another thing I tend to look at is current broker views. This gives me an idea of what institutional investors are thinking about particular stocks. An upgrade or lowering of price targets, as well as the accompanying views, give me a lot of insight.

Last week, comments from investment bank Berenberg caught my eye. It upped its price target for Cineworld shares to 85p from 70p but still maintained its ‘hold’ rating. What I found interesting was how it believes that the stock is “almost certainly the wrong price” and that there are still “too many unknowns” about the company’s outlook.

It evens added that “we struggle to have much conviction about what is likely to happen next, and the limited guidance from Cineworld (particularly on its priorities for cash in the coming years) only makes it more difficult”.

In short, even the analysts are unsure about which direction Cineworld shares are going to take next. This is clearly reflected in the ‘hold’ rating.

Cineworld shares: should I buy?

The stock is on my watch list. I personally feel that cinemas have a big role to play in the movie industry, even if it’s not the all-powerful role it once was. But times are changing with the growth of streaming platforms like Netflix. In fact, I believe the black swan event that is Covid-19 has caused a fundamental shift in how films could be distributed going forward. I don’t think it’s game over for Cineworld, but it needs to re-evaluate a lot of things.

However, there’s a bright side too. The company released an update in May and this was positive. Most of its US cinemas are now open and its expects a recovery in attendance over the coming months. Big movie releases should also help, as seen with the success of Cruella and A Quiet Place 2.

But for me, the risks outweigh the potential rewards. So I’m not buying Cineworld shares just yet.

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.

Nadia Yaqub has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Netflix. 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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