Move aside AMC, Cineworld shares could be the next meme stock

Motley Fool contributor Chris MacDonald considers the potential for Cineworld shares to take new meaning as a meme stock trade.

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The investing world as we know it is changing form. Retail investors are increasingly finding power in numbers. Indeed, for U.S.-based cinema operator AMC Entertainment, this has resulted in various “meme stock” rallies that have taken this cinema chain to absolutely incredible levels of late. For U.K.-based cinema operator Cineworld (LSE:CINE), its shares have yet to exhibit such a move.

In fact, looking at the medium-term stock chart of the company, we see far from this kind of volatility taking place. That said, Cineworld shares have shown momentum of late. In fact, since the beginning of October, this stock has been a three-bagger.

Let’s discuss whether this momentum could continue, or if more downside potential is possible with Cineworld.

Pandemic reopening thesis is strong with Cineworld shares

The pandemic reopening thesis remains the key driver providing support for the cinema operator right now. Indeed, as pandemic-related restrictions are lifted (hopefully sooner than later), cinema operators stand to benefit from this trend more than most sectors.

Of course, the rise of the Delta variant and recent lockdown measures imposed closer to home have provided pause for investors. While Prime Minister Boris Johnson announced on Monday the government’s plan to allow British citizens to go maskless by the end of the month, worries about the potential rapid spread of the delta variant in such an environment is stoking caution among traders.

That said, Cineworld has seen impressive demand in its first few weeks of reopening specific locations. This reopening thesis makes Cineworld shares attractive to me.

Let’s dive into whether or not Cineworld has what it takes to become a true “meme” stock.

Cineworld well positioned for a speculative rally

It’s worth noting that what’s been going on with AMC in the U.S. is incredible. Accordingly, whether or not a similar meme rally with Cineworld shares in the U.K. remains to be seen.

However, there are some interesting parallels between the two companies, aside from their obvious similarities.

First, Cineworld is heavily shorted at the moment. The current short interest with CINE stock is around 36%. For investors who may not be familiar with these numbers, that’s high. That means that for every 100 available shares of CINE stock, 36 shares are currently being shorted.

For retail investors looking to orchestrate a squeeze, this is the perfect type of environment to do so. While it’s unclear whether other intrinsic factors driving a short squeeze type of rush into Cineworld shares may materialise, the company’s share price around 84p certainly invites retail investors to buy this stock heavily at these levels.

Bottom line

Short squeezes are typically very rare occurrences, and are usually a footnote in most business school textbooks. However, what we’ve seen of late in the cinema space makes the stock interesting to consider from this speculative lens.

That said, from a longer-term perspective, Cineworld shares appear to be much more reasonably valued than those of AMC. This stock is still trading well below its pre-pandemic levels. Accordingly, I’m considering this stock on a value basis alone.

The potential for a short squeeze shouldn’t be the reason to own any stock. That wouldn’t be Foolish. However, Cineworld’s prospective outlook in a fully reopened economy is enticing. Accordingly, this is a stock on my watch list right now.

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.

Fool contributor Chris MacDonald has no position in any shares mentioned in this article. 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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