The Cineworld (LSE: CINE) share price has fallen in value by around 50% over the past 12 months. Following this disappointing performance, the stock looks cheap compared to its trading history, but not on a fundamental basis.
Cineworld share price outlook
Fundamentally, the company is fighting for survival. It has a tremendous debt pile, which could take decades to clear, and management is currently locked in a legal battle with Cineplex.
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The Canadian cinema operator is seeking billions of dollars from Cineworld after the latter failed to consummate its deal to acquire its peer.
Still, it is not all doom and gloom for the Cineworld share price. Thanks to an impressive slate of film releases over the past six months, the group generated positive cash flow in the last quarter of 2021. This marks a turning point for the company after nearly two years of losses and cash outflows.
Unfortunately, there is no guarantee this trend will continue. There are plenty of risks on the horizon that could hit consumer sentiment, and as a result, sales. And considering these risks, I am avoiding the Cineworld share price.
However, there is one penny stock that I would be happy to add to my portfolio in its place.
Penny stock alternative
When I am looking for portfolio additions, I like to focus on businesses with a competitive edge. This can be anything from a solid brand to a unique market position. Cineworld has neither of these qualities.
But estate agent group Foxtons (LSE: FOXT) does. The business exhibits some of the qualities I look for when seeking out great businesses. It has a strong brand in the London market and a recurring income stream from its rental division.
On top of these factors, it has a relatively strong balance sheet and has been spending cash to acquire peers across the UK to expand its footprint.
Admittedly this strategy has pushed the company from a net cash to a net debt position in the past three years, weakening the balance sheet. Still, the firm is highly profitable, so this debt seems sustainable.
Foxtons stock has also slumped 50% over the past year. However, unlike the Cineworld share price, the firm’s profits have been expanding.
An exciting opportunity
I think this presents an opportunity for investors like myself. While the company may encounter some risks over the next 12 months, such as a property market slowdown due to higher interest rates, I think it has a strong position in the UK property market. This should enable it to navigate any challenges.
This is why I would buy shares in the penny stock over Cineworld today. I think the rest of the market is overlooking the investment opportunity and potential for the company over the next few years.