Bullish: Manika Premsingh
Multinational cinema operator Cineworld (LSE: CINE) went through a rough time in the pandemic. And unlike many other pandemic-impacted stocks, its share price has still not returned to pre-pandemic levels. It is highly sensitive to any Covid-19 related developments, which could potentially bring its business to a grinding halt in a flash, like it did last year.
Yet, I have been bullish on the stock for a while now and have even bought it. The reason is not hard to guess. It is one of my recovery picks, because I think that cinemas could boom as the pandemic recedes and the recovery takes hold.
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Already, there are signs of improvement in Cineworld’s performance. As per its latest trading update, the company’s revenues in October were back to 90% of their pre-pandemic levels of 2019. The numbers for the UK and Ireland are particularly encouraging, since they have actually surpassed the 2019 revenues.
The rest of 2021 also looks good for it, with blockbusters like Spider-Man: No Way Home, The Matrix Resurrections and Sing 2 slated for release. 2022 is expected to be dotted with big releases as well, including those that were delayed because of Covid-19. So there is little reason to doubt, in my view, that the FTSE 250 stock could be in much better shape by this time next year.
There could be stumbling blocks along the way ,of course. It has a mountain of debt to pay off, the pandemic is still something of a challenge, and rising inflation could slow down recovery significantly, which could impact investor sentiment. On the whole, though, I am optimistic for Cineworld.
Manika Premsingh owns shares of Cineworld
Bearish: Paul Summers
I’ve been bearish on Cineworld shares for as long as I can remember. Based on the sheer number of headwinds faced by the company, I can’t see this changing any time soon.
This stance might seem odd considering the success of No Time to Die and the encouraging slate of films due for release in 2022 (including Matrix 4, Top Gun 2 and Jurassic World: Dominion). But let’s be realistic. Like the stock market, nothing is guaranteed in the movie world. Nailed-on blockbusters can be poorly received. Even better-than-expected weather can impact Cineworld’s earnings. This makes the industry pretty risky for investors, in my opinion.
In addition to this, you have the seemingly perpetual rise of streaming services such as Netflix and Amazon Prime. The shorter window of opportunity Cineworld now has between a film being shown on the silver screen and being available to watch from the comfort of my own home is worrying.
By far Cineworld’s biggest problem, however, is that massive debt pile. Even if the pandemic is nearing its final chapter, that burden will still take a long time to shift. This may be the reason why the company is easily the most shorted stock on the UK market.
The cinema operator might have the potential to make money for traders nipping in and out of positions. For a long-term investor like me, however, Cineworld simply doesn’t make the grade.
Paul Summers has no position in any of the shares mentioned.