Cineworld (LSE:CINE) shares have been pummelled throughout the pandemic and after it. Having added the company to my portfolio some months ago, it hasn’t been easy watching the share price slide. However, I think there are also reasons to be hopeful.
Emerging from the pandemic
In the past year, the shares have plummeted by around 78.5%. In just the last three months, the share price has also fallen by 44%. The stock currently trades at 19p.
The main problem for the company was that pandemic restrictions forced cinemas to close across the world. This caused revenue to decline massively and ultimately meant that the firm posted massive losses in 2020.
For that year, the pre-tax loss amounted to $3bn. This was a drastic fall compared to 2019, when the business declared a pre-tax profit of $212m.
By the end of 2021, however, the pre-tax loss had shrunk to $708m as more cinemas reopened. While this loss is still concerning, it’s encouraging to see it narrow.
One aspect of the business that still worries me, though, is the debt pile. This stands at around $9bn and the firm only has a cash balance of $350m. This debt needs to fall if the company is going to perform well over the long term. I’ll be closely watching this figure in the coming months.
Some reasons for optimism
Yet there are many reasons to be optimistic about Cineworld’s future. With restrictions gone, the business has seen all its cinemas open for a number of months.
When results for the first half of 2022 are released in September, I think the end of restrictions should mean higher revenue and, potentially, a pre-tax profit rather than a loss.
Furthermore, the firm has benefited from a number of successful films released in recent months. These include Spiderman: No Way Home and Top Gun: Maverick. Later this year, Avatar 2 will hopefully have a good time at the box office.
Despite this, the company is currently fighting a legal battle with Canadian rival Cineplex. The latter was awarded damages of around £700m by a Canadian court after a botched takeover deal by Cineworld during the pandemic. Cineworld is currently appealing the verdict. However, it will have to wait a little longer before it finds out the result of the appeal.
These damages from the legal battle would become an unsecured debt if the verdict isn’t overturned, but Cineworld is mulling a dual-listing in the US. This listing could potentially raise funds to pay down its debt pile and cope with any negative outcome from the legal battle.
Overall, the share price action hasn’t been pleasant to watch, but I’m remaining patient and holding on to my shares. While the debt is concerning, the strong film slate is encouraging. I won’t be adding to my position anytime soon, but I won’t rule out further purchases over the long term.
