Is Cineworld’s share price too cheap to miss?

So Cineworld’s share price has collapsed from March’s post-crash highs. But does this correction represent a fresh buying opportunity?

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Cineworld cinema

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The Cineworld Group (LSE: CINE) share price has roared back since striking record lows around 15p last October. Though fears of its ability to continue as a going concern remained, news of a breakthrough on the Covid-19 vaccine front in late autumn has helped the UK leisure chain rocket from those troughs.

Cineworld’s share price is 86% more expensive than it was a year ago at 65p thanks to successful UK and US vaccination drives. However, the penny stock has recently retraced sharply due to fresh waves of Covid-19 infections. At 62.6p per share Cineworld’s now worth half of March’s post-2020 stock market crash highs.

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Superheroes to the rescue!

Is the market over-reacting here? After all, predictions of a catastrophic worsening in the fight against Covid-19 have proved wide of the mark. Daily infections in the UK peaked at around 50,000 during the current wave in mid-July before sharply falling again. This is some way off many scientists’s estimates and way off the 80,000-odd new cases reported in December’s peak.

What’s more, predictions that ticket sales could be weak as Covid-19 restrictions were eased have also been disproved. The possibility that streaming giants like Netflix would keep movie goers glued to their sofas was particularly concerning for Cineworld investors. But blockbuster results from the likes of Odeon show that peoples’s love of the big screen remains undimmed.

A strong slate of movie releases like A Quiet Place II, Fast & Furious 9, and Black Widow have encouraged people back into movie theatres in huge numbers. And the conveyor belt of crowd pullers being released looks set to click through the gears. Comic book favourites like Spider-Man: No Way Home, Venom 2, and Eternals are all scheduled for release later this year. New movies from established franchises like Ghostbusters, The Matrix and James Bond are also coming down the pipe for 2021.

Cineworld’s share price: not cheap enough for me

However, will the revival in the cinema industry be too late to save Cineworld? Research firm Omdia has forecast that the UK box office won’t reach 2019’s levels of £1.3bn until 2023. This is a massive concern given the huge amount of debt sitting on Cineworld’s books.

There’s also the question over the long-term impact that the streamers will have on cinema operators’ profits. Okay, box office numbers have been exceptional since coronavirus restrictions were eased. But does the high level of ticket sales reflect the one-off boost of people being desperate to get out and about again? Will audience numbers at Cineworld be as high as in pre-coronavirus times as the likes of Netflix invest heavily in content and technology?

Finally, it’s worth remembering that whilE recent Covid-19 cases haven’t been as bad as feared, they could well soar again. The fight against the pandemic is ongoing and new variants could emerge that might force Cineworld and its peers to close their doors again. And in the case of this particular UK share I fear the implications of this could prove fatal.

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Royston Wild 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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