Is Cineworld’s share price about to surge or sink?

Cineworld’s share price continues to see-saw as details on the Omicron variant filter through. Here’s why I think it could fall further.

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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 Group (LSE: CINE) investors are enduring a wild time at the minute. Confidence in the UK leisure share is shaking wildly as developments surrounding the Omicron coronavirus variant come in. Today, news surrounding the variant hasn’t been as scary and so the Cineworld share price has leapt 7.5% in Wednesday trade.

2021 hasn’t been kind to the Cineworld share price. Since closing at peaks of 122p in March, it’s more than halved in value to current levels around 50.5p. Cineworld is now trading 21% cheaper than it was at the beginning of the year.

So would I buy? In the case of high-risk shares like Cineworld, I think it’s especially important to get a range of opinions from other investors before buying.

Short stuff

Even the most experienced traders can get it wrong. But I think it’s worth gauging the views of hedge funds and institutional investors on Cineworld’s share price.

According to shorttracker.co.uk, a worrying 9.4% of Cineworld shares are currently being shorted. That’s up from 9.1% around a month ago and puts the leisure share clear at the top of the ‘most hated’ list.

News surrounding the Omicron variant has encouraged further short-selling. But the increased shorting of Cineworld’s share price began long before mid-November. Just 3.3% of its shares were being bet against six months ago.

Reasons to be cheerful

So where does the Cineworld share price go next? It’s not outside the realms of possibility that it will stride back towards March’s highs in the not-too-distant future. Studies showing that Omicron isn’t as dangerous as previously feared — a scenario that would vanquish fears that cinema’s could be closed en masse again — would be the most obvious near-term driver.

Cineworld could also leap again if box office stats from the US and UK continue to impress. Movie lovers have been returning to theatres in their droves since Covid-19 restrictions were relaxed earlier this year. Capacity at Cineworld’s sites in October clocked in at a reassuring 90% of the level in the equivalent month in 2019, latest financials showed.

Why I worry for Cineworld’s share price

All that being said, I’m afraid I won’t be taking a risk on Cineworld shares any time soon. My main worry over this UK share is the huge amounts of debt it still carries on its balance sheet ($8.4bn worth as of June). This could prove fatal if Omicron (or indeed any other Covid-19 variation) forces its theatres to close. At best, it casts a shadow over the company’s ability to invest in its operations for future growth.

This is particularly concerning given the rising popularity of Netflix and other streaming platforms. These companies are investing billions every year in content and technology to win viewers from other media.

Cinema operators will have to also keep splashing the cash on an enormous level to remain relevant and keep pulling in the punters. I think Cineworld’s share price could remain weak and possibly plummet, even if it manages to survive the Covid-19 crisis.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Royston Wild has no position in any of the shares 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.

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