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The Cineworld share price drops to lowest level in a month. Would I buy it?

Cineworld cinema
Image source: DCM

As I write, the Cineworld (LSE: CINE) share price is trading at 62.7p. If it ends the day at around these levels, it would be the lowest it has seen in a month. So is this an opportunity for me to buy the FTSE 250 penny stock, or should I run for cover?

Why is the Cineworld share price falling?

To figure that out, I looked at the recent drivers for the stock price. It turns out that it has been highly sensitive to movie release dates. The latest decline comes as Disney postpones key releases to 2022 and 2023. This includes superhero films like the sequels to Black Panther and Thor. Thankfully, changes to schedules of these Marvel studios’ movies appear to have nothing to do with the pandemic. They are attributed to “production shifts”.

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I think that is a far better reason for the delays than pandemic-related uncertainty. That has been the case in the past. For instance, Tom Cruise’s Mission Impossible and Top Gun sequels were postponed to 2022 a couple of months ago, on fears of another Covid-19 wave. That is a bigger disappointment for Cineworld investors because there is no way of knowing how long the uncertainty will last. And there is alway the risk that other releases could be postponed too. 

James Bond wanes, October starts on nervous note

On the other hand, the Cineworld share price rallied last month as demand for the latest James Bond flick was strong as bookings opened. Between mid-September to the end of the month, Cineworld’s share price had risen some 36%. The blockbuster, which has performed better than some of the recent films of the franchise, provide a much needed sales boost to the cinema post-lockdowns. And I reckon that it is exactly what drove the share price forward. 

But come October, and the share price started tanking again. This was partly due to weak stock markets as such. Earlier in the month, the FTSE 100 index had actually fallen below 7,000, raising questions of whether we can expect another stock market crash now. For now though, things seem to be getting better. Stock markets found their mojo again recently and are now trading at pre-pandemic levels. 

Why I am optimistic about Cineworld

I think investor confidence is great for cyclical stocks like Cineworld, since it means greater risk appetite for battered cinema stocks. Moreover, there is also greater confidence among audiences in going back to cinemas. This can mean more movie releases and more footfall, especially after the long Covid-19-related hiatus. I am keenly watching how cinema companies perform during the festive season, that may also encourage audiences. 

Challenges and takeaway

The Cineworld stock still has its challenges though. The biggest one as I see is its huge debt. And cinema closures for much for the past two years made matters only worse. A sustained pickup in its revenues will be critical for the Cineworld share price to bounce back to pre-pandemic levels. I am hopeful that it can happen over time, which is why I am in investor in it. So yes, even with the risks, the dip means a buy for me. 

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Manika Premsingh owns shares of Cineworld Group. 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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