Is the current Cineworld share price a bargain for 2022 and beyond?

Jabran Khan delves deeper into the Cineworld share price at current levels and decides if it could be a shrewd addition to his portfolio in 2022.

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Cineworld cinema

Image source: DCM

It would be easy for me to argue Cineworld (LSE:CINE) was one of the biggest losers due to the Covid-19 pandemic. But could the current Cineworld share price be a contrarian option for my holdings for 2022 and beyond? Let’s take a look.

Cineworld share price turmoil

As I write, Cineworld shares are trading for 39p. At this time last year, the shares were trading for 73p, which is a 44% drop over a 12-month period. This time period only provides a small snapshot into the woes of Cineworld shares.

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Looking back even further, the Cineworld share price was trading for 181p on 8 February 2020, just before the pandemic struck and markets crashed. At current levels, that’s a decline of 78%. In early February 2019, the shares were trading for 259p, which is a decline of 85% at current levels. The shares seem to have been on a downward trajectory for some time before the pandemic struck. Could 2022 bring a resurgence?

Things to consider

Going to the cinema is one of my favourite pastimes. Cineworld will be hoping to benefit from the reopening of the film industry and blockbuster releases. Pent-up demand could boost financials and the Cineworld share price upwards. Recent blockbuster releases such as James Bond: No Time to Die and Spiderman: No Way Home have helped revenues surpass pre-pandemic levels.

So what’s next? Could further blockbusters and continued pent up demand boost the numbers? Of course they could. I’m excited to watch the new Jurassic Park and Mission Impossible movies in the coming year. The most recent update from Cineworld said attendance and revenues increased throughout 2021. But will it be enough to resurrect a business that has taken a beating since 2020?

Firstly, debt levels are a major red flag for me. Cineworld had to borrow extensively just to keep the lights on. I often find firms like Cineworld, that have a high debt level, recently mixed performance and uncertainty ahead can have a negative impact on the share price.

Next, competition is intense in the entertainment market. The pandemic got us all used to sitting on our sofas and watching Netflix, Amazon, and Disney +. The rise of these platforms could hinder Cineworld longer term. 

As well as the competition, the Cineworld share price could take another major hit. Recently. A Canadian court ruled Cineworld must pay C$1.23bn to Cineplex. This is for pulling out of a deal it agreed pre-pandemic, to buy the business. The investor sentiment around this, and the costs involved if forced to pay, could be devastating.

My verdict

Although I am a bit more enthused by the prospects for Cineworld shares in 2022 and beyond, I still wouldn’t add the shares to my holdings. Despite positive trading recently and increased number of cinema-goers, debt levels, new competition surging ahead due to the pandemic, and the recent court case all put me off. I think the Cineworld share price is likely to remain quite low for some time. I would rather invest my cash in stocks with better prospects.

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Jabran Khan 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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