Cineworld Group (LSE: CINE) has seen its share price shake wildly in recent sessions. Concerns over the company (and more specifically its colossal debt pile) have dogged the leisure stock for years now. The tragic events unfolding in Ukraine, and the boost they’ve given to already-rampant inflation, have amplified jitters around the cinema operator more recently, too.
Cineworld’s share price closed at two-month lows around 29p on Tuesday. And while it’s recovered ground in recent days (it was last trading around 35.8p), Cineworld still trades at big discount to prices above £1 a year ago.
Does this present a great dip-buying opportunity for me? Or should I ignore Cineworld’s battered share price and look for other stocks to buy?
The Bat swoops in
As news on Ukraine dominates investor attention, some more positive news surrounding the global box office may have been missed by many. They’ve bolstered hopes that Cineworld could continue rebounding strongly.
Last week was the turn of The Batman to impress with solid sales numbers. In its opening weekend of March 4 and 5 the latest movie in the ‘Caped Crusader’s’ canon drew a whopping $248.5m in global ticket sales. More than half of this was generated in Cineworld’s core North American market, too.
Cinema takings have rocketed following the end of Covid-19 lockdowns. Blockbuster flicks like The Batman and Spider-Man: No Way Home have continued to generate jaw-dropping ticket sales as they did before the pandemic. And this steady stream of action sequels, reboots, and spin-offs has helped sales at Cineworld bounce back strongly.
Debt worries
This suggests to me, then, that cinema operators could remain an attractive place for me to invest. The problem I have specifically with Cineworld, however, is that its share price doesn’t look cheap enough on paper. A forward price-to-earnings ratio around 14.5 times in my opinion doesn’t reflect the degree of risk it poses to investors.
First up let’s talk about Cineworld and its hulking debt levels. The business had more than $8.4bn of net debt as of September. And full-year results scheduled for this week (Thursday, 17 March) will show that its balance sheet remains choked with debt. Damages related to its aborted takeover of Cineplex in 2020 look set to throw several more hundred million dollars onto the pile, too.
At best, these huge debts will constrain Cineworld’s growth plans. They will also delay the return of shareholder dividends. However, it’s possible that these debts will put the company in peril if the pandemic worsens again and fresh lockdowns come into effect.
Other threats to Cineworld’s share price
But as I say, debt is just one reason I’d continue avoiding Cineworld and its cheap share price. I worry about how rocketing inflation (which sits at multi-decade highs in the US and UK) will affect ticket sales in the short-to-medium term.
And in the long term I worry about how run-of-the-mill cinema operators like Cineworld will perform as Netflix and the other streaming giants turbocharge investment in technology and in programming. For all these reasons I’d rather buy other cheap UK shares right now.
