Despite reviving over August, the Cineworld (LSE: CINE) share price is still roughly 50% below where it stood five months ago. That’s despite cinemas having been open for some time and, more recently, all Covid-19 restrictions being lifted.
Today, I’ll highlight three reasons why next month might be a good one for the stock and its long-suffering owners.
The Cineworld share price: ready to rally?
First, you have the release of the long-awaited James Bond film ‘No Time to Die’. Postponed several times due to the Covid-19 crisis, the new movie will be hitting the silver screen on 30 September.
Importantly, the latest Bond installment isn’t arriving on streaming services at the same time. This is in contrast to the tactic recently used by Disney for films such as Cruella and Black Widow. Such is the popularity of the franchise, I suspect the restriction could see previously nervous fans flock to screenings.
Assuming these experiences are positive, this could mark an inflection point in Cineworld’s fortunes and trading can get back to normal.
There are other, perhaps more speculative reasons for thinking the Cineworld share price might climb. Any upward momentum could be boosted by a ‘short squeeze’, for example. As things stand, the company remains the most shorted stock on the market.
Third, I also wonder if the end of school holidays (and the advent of colder weather) is another potential catalyst for improved business, since families will be looking for fuss-free things to do at the weekend again. Sensing this, the market could send the Cineworld shares higher in advance.
So, am I a buyer?
In short, no. It’s possible the above may not be enough to truly arrest the downward trajectory of the Cineworld share price. Moreover, I think the company faces a number of challenges beyond September.
#1) No control. Cineworld’s ability to revive itself ultimately depends on something it can’t control, namely the popularity of the movies it shows. I believe the Bond movie will be a huge money-maker, whatever the reviews. But how many other films look like nailed-on blockbusters? A few, but not many, I submit.
#2) Foggy outlook. I’m just not optimistic about the future of cinemas in general. Yes, they’re a relatively inexpensive treat and I don’t think they’ll disappear anytime soon, despite the popularity of Disney+, Netflix and Amazon Prime. However, nor do I expect the sort of growth over the next few years that other listed companies may be able to achieve. With limited capital at my disposal, I’m looking for stocks that will shoot the lights out, not amble along.
#3) Disturbing debt burden. Even if next month does mark a turning point in the Cineworld share price, all that debt is hard to ignore. The potential for the company to list in the US might help, but it does seem a rather desperate move (and might not actually happen). Why would I take on this risk when there are many financially sound UK stocks for me to buy instead?
#4) Traders selling up. Having commanded a much higher price earlier in 2021, I think it’s fair to say that at least some traders are still underwater. As such, any sufficiently strong rise in the Cineworld share price might be sold into. This, in turn, could impede the recovery. Investors will probably need to be patient.
