The Motley Fool

As Cineworld shares tumble again are they a good buy?

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.

Cineworld cinema
Image source: DCM

As recently as the end of September, Cineworld shares had bounced back to 82p. Back below 70p at the time of writing, does the recent tumble mean shares in the cinema group are a buy for me?

Reasons to buy Cineworld shares

One of the reasons Cineworld shares could be a buy is that the James Bond film, No Time to Die, has dramatically boosted cinema attendance. Rival Odeon said it had sold a staggering 1m tickets in Britain and Ireland alone. The movie took a mighty $121m at the international box office over its opening weekend, according to Universal Pictures last week. It’s been a great success and one much needed by cinema chains.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

For consumers who’ve not done much in the last 18 months and saved money during lockdown, it’s a welcome distraction. Cinema is a relatively cheap indoor activity and with winter coming, a run of good films could really help the cinema operators.

Other studios will see the success of No Time to Die and still want to use cinema as their primary release channel, rather than streaming at launch. That may help mute the effects of some of the changes that were happening in the industry (and that worried many investors) before anyone had even heard of Covid-19.

Changing dynamics of the industry

Longer term though, does investing in Cineworld shares make sense for me? I don’t think so. Film studios are increasingly putting films that have been very recently released in cinemas online. That reduces the urgency of a trip to the cinema.

The continued growth of streaming services continues to cut away at the appeal of cinemas that haven’t done enough to respond to the challenge.

When it comes to Cineworld shares there are the fundamentals to consider. Even if Cineworld makes it through the next few years, will it ever be as a strong a business as it was and will its share price ever attract enough buyers to push up the price? I’m not sure. Due to massive acquisitions and the pandemic, net debt has gone from £361m to £8.4bn. The company’s market cap is less than £1bn remember.

Shareholders have also been massively diluted as the company has fought to survive. The share count more than doubled from 2015 to 2020. Now all earnings are distributed between more investors, meaning the earnings are worth less per share. Unless the company buys back shares, then it can’t grow its earnings per share.

There will be more film releases in 2021, of course, and 13 of these will be shown in Cineworld cinemas this year, including West Side Story and The Matrix Resurrections. These won’t be as big as Bond and time will tell if they’ll really pull in the punters and enough money to allow Cineworld to recover from the trauma of the last 18 months.  

More shares, more debt, and an industry in decline all combine to make me very wary of investing any of my hard-earned cash in Cineworld shares. I’d much rather invest in great UK growth shares with long-term potential.

One FTSE “Snowball Stock” With Runaway Revenues

Looking for new share ideas?

Grab this FREE report now.

Inside, you discover one FTSE company with a runaway snowball of profits.

From 2015-2019…

  • Revenues increased 38.6%.
  • Its net income went up 19.7 times!
  • Since 2012, revenues from regular users have almost DOUBLED

The opportunity here really is astounding.

In fact, one of its own board members recently snapped up 25,000 shares using their own money...

So why sit on the side lines a minute longer?

You could have the full details on this company right now.

Grab your free report – while it’s online.

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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.