The Cineworld share price could fall further and here’s why

The Cineworld share price is currently around 67p but it could fall a lot further in the coming years and not just because of the pandemic.

| 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.

This is just my opinion: but I strongly suspect the Cineworld (LSE: CINE) share price will fall further. I have no idea what it’ll do over the next few days, weeks, or months, because over that short time frame any stock can go up or down regardless of the underlying value of the business. Just ask previous investors in failed outsourcer Carillion, to take one example. Or even Wirecard investors, to name another.

I’m far more confident to say that in two to three years, Cineworld’s shares will be worth even less than they are now.

The main reason why the share could fall further

My biggest concern with this share is its debt. Net debt is over £8bn. Over-indebtedness like this imposes an ever-tightening stranglehold on a business. Sometimes it can take a while for the effects to become obvious. 

What’s clear to me though is that any business that fails will wipe out shareholders, as other creditors are always further up the list to get money out of the business. It also means, before that stage, that the business has to spend money on paying its debts rather than on growth initiatives. That’s not a great use of money.

Other potential pitfalls for the Cineworld share price

The whole industry is under siege from streaming. This onslaught is unlikely to abate any time soon, in my view, despite the recent hiccup in Netflix’s subscriber numbers.

In the last six years, the number of shares has more than doubled. Cineworld has had to ask shareholders for money to get through the pandemic. What that means is it will be hard to get to the same level of earnings per share as pre-pandemic without tremendous growth. 

The vaccination rate may be very good in the UK, which should help leisure reopen – pingdemic aside. However, a quick reopening is far less assured than it was a few months ago. Any further closure of cinemas could have a catastrophic impact on the Cineworld share price.

Finally, a legal spat with Cineplex over an abandoned acquisition, could add further costs and distract management at a crucial time for the business.

The reasons it could do the opposite of what I predict

I can’t guarantee what will happen in the future – no one can. The Cineworld share price could rise. It may effectively get debt under control or rationalise the business, or sell off some bits. This would be the main way I see the share price recovering in a way that is sustainable.

If the leisure industry, consumer spending, and the economy all bounce back very strongly, Cineworld might get a boost as a so-called recovery stock. That’s short term though.

With Cineworld still worth around £900m, there is still a long way for it to fall, and I’ll be avoiding the shares.

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.

Andy Ross owns no share mentioned. 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

pensive bearded business man sitting on chair looking out of the window
Investing Articles

Would a stock market crash matter?

Christopher Ruane explains why a stock market crash could turn out to be positive, not negative, for a private investor…

Read more »

Investing Articles

Has the Rolls-Royce share price peaked?

After a strong 2023 performance and (so far) in 2024, the Rolls-Royce share price has stuttered in recent days. Christopher…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

Turning a £20k ISA into a £13,900 yearly second income? It’s possible!

By investing a £20k ISA now using certain basic principles, our writer thinks he could set up a second income…

Read more »

Fans of Warren Buffett taking his photo
Investing Articles

With no savings, I’d follow Warren Buffett’s number one rule to build wealth

Can this one piece of Warren Buffett wisdom really help our writer as he aims to build wealth in the…

Read more »

Storytelling image of a multiethnic senior couple in love - Elderly married couple dating outdoors, love emotions and feelings
Investing Articles

A second income of £1k a month from just £10 a day! How would I do that?

Mark David Hartley considers how to build a second income stream starting from just £10 a day. Is £1,000 a…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

Turn £8,900 into a £24k annual passive income? Here’s how!

Christopher Ruane applies some investing lessons from billionaire Warren Buffett when explaining how he'd aim to earn sizeable passive income…

Read more »

Young Caucasian woman holding up four fingers
Investing Articles

7%+ dividend yields! 4 FTSE 100 shares for investors to consider buying in April

These FTSE shares offer dividend yields comfortably above the index average of 3.7%. Here's why they could be good passive…

Read more »

Dividend Shares

£10k in an ISA? Here’s how to generate a ton of passive income

Passive income can provide a lot more financial freedom and security. Here’s an easy way to generate some within an…

Read more »