It has been a difficult few years for Cineworld (LSE:CINE). Ever since the pandemic hit and cinemas globally were forced to close, it hasn’t managed to properly recover. The share price chart below highlights this, with a fall of 71% over the past year. But with a lot of pessimism built into the current Cineworld share price, here’s why I think it has legs to move higher this year.
Lapping up big screen releases
The first reason is down to the company slogan of “the best place to watch a movie”. One of the key elements to provide Cineworld with revenue is big blockbuster movies. The business will never compete on streaming services, box sets or other ancillary offerings. The big screen is the place for big films.
It’s taken a while for this offering to return, with major studios delaying the release dates of key films. This is now changing. We recently had Top Gun, which grossed $124m in revenue in the opening weekend alone.
Ahead this year we have Avatar 2, Black Adam and Lightyear. All of these appeal to a different demographic, yet each have large revenue potential.
A surprise with upcoming earnings?
The second reason why the Cineworld share price could move higher this summer is due to the half-year results due out in August.
In the latest results for the full-year 2021, the business noted that even though cinemas had been closed for a third of the year, it still delivered revenue of $1,804.9m and adjusted EBITDA of $454.9m. So my thinking is that given the lack of restrictions for the whole of the trading year so far, the business should be able to deliver a profit in the half-year results.
Clearly, we should get some guidance on that in the near term via a trading update. But given the low Cineworld share price, any jump in earnings should help to push the stock price higher. Future expectations of higher earnings should see more investors pile in.
Better risk appetite
Finally, I think that bearish sentiment in general could ease pressure on the Cineworld share price. The slump this year is in part due to the business specifically. Yet a good amount is also down to negative views about the world in general.
Some investors are concerned about high inflation, the war in Ukraine, surging energy bills and much more. So when faced with where to put money in the stock market, they turn to defensive stocks. High-risk growth stocks such as Cineworld are shunned.
It’s impossible for me to say for sure how the summer will play out. Yet I do think we could see a longed-for resolution to the situation in Ukraine. I also think we could see more supportive measures put in place from governments to help ease the cost of living crisis. A subsequent sentiment change could make investors feel more comfortable about parking their money in Cineworld stock.
My verdict on the Cineworld share price
I still see risks for the company, however, especially as my investment case contains a lot of ‘ifs’. The size of its debt is one key point. The shift in consumer behaviour towards watching movies at home is another problem. Yet I see the stock as attractive, so I’m considering buying now.
