Cineworld (LSE: CINE) has been in a funk for a while now. But its performance in today’s trading takes the cake as far as underperformance goes. At 51p as I write, the Cineworld share price is trading at one-year lows. And this is when the year has not exactly been among the best for the cinema operator anyway. As trading started today, the stock crashed by more than 10% from yesterday’s close. It has recovered a bit since, but is still down by over 4% as I write, making it among the biggest FTSE 250 losers so far.
Why has this happened, exactly?
Covid-19 and the Cineworld share price
This question, I believe is significant because stock markets are doing quite well otherwise today. The FTSE 250 index, of which Cineworld is a part, has risen slightly and is trading comfortable above 23,000 at present. So clearly, the challenge is limited to this stock.
There is no new news I can see on the group so far that could have suddenly sent its share price into a tailspin. The broader conditions, however, are a separate matter. It could have been impacted by speculation that the US is going to see a fifth wave of Covid-19 soon. Travel across the country for Thanksgiving is expected to result in a fresh rise in cases, which have already been on the rise in the past month.
The big US market
Some 60% of Cineworld’s revenues are derived from the US since its acquisition of Regal Cinemas a few years ago. It follows that these pandemic trends could impact its growth significantly going forward. Audiences might want to exercise caution against being in public places, though the authorities have ruled out the possibility of another lockdown in the country.
Room for hope
The stock would continue to suffer however, only if the trend were to continue. I would not speculate on that. But from what we have seen so far, there is room for hope that the pandemic will recede over time, even with occasional fluctuations.
Also, as of its last update, business is now doing well in other big markets like the UK and Ireland. This update happened just a few days ago, making it the biggest gainer on the day. This to me suggests that investors are probably more reactive than usual to news flow on the stock. And if we continue to see more good news than bad in the next few months, I reckon its share price could rise further.
And indeed, there could be good news ahead. The company has finally become cash flow positive for the first time since the pandemic started. A slew of potential blockbusters is also lined up for 2022. Already, the release of big-budget movies in the last couple of months is beginning to turn its fortunes around.
My takeaway for Cineworld
Cineworld is not anywhere near out of the woods so far, to be sure. It is highly indebted and is yet to swing back into profit. But even if it sounds contrarian, I like the stock and think it could rally in 2022. I bought it a while ago and continue to hold it for now.
