Are my Cineworld shares quickly becoming worthless?

Andrew Woods wonders whether his Cineworld shares could be going to zero amid financial troubles for this cinema giant.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

It’s easy for anyone to see that Cineworld (LSE:CINE) shares have taken a pounding over the last few years. I bought the shares during the depths of the pandemic because I thought at some point the cinema firm would enjoy a recovery. 

However, there appears to be more to this story than meets the eye. Let’s take a closer look. 

Some worrying news

The company recently released a statement saying that sales hadn’t recovered at the required pace, and that it would have to deleverage in order to survive. This essentially means issuing more equity to reduce debt.

As a shareholder, this was worrying because it means that my current holding may be diluted and be worth even less than it was before.

Shortly after it said it was potentially filing for bankruptcy in the US. This is another indication that the firm could be on the verge of financial destruction.

The market understandably interpreted both of these news stories negatively and the share price plunged from around 25p to 2p. At the time of writing, the shares are trading at 5.7p.

Financial woes

The pandemic and its associated restrictions forced the closure of cinemas worldwide. This had a devastating impact on the firm, and it slumped to significant pre-tax losses in both 2020 and 2021.

With dwindling revenue, it decided to take on more debt in order to continue its operations. This debt pile now stands at $9.23bn with a cash balance of just $354m.

The bad state of affairs that Cineworld now finds itself in started earlier, however. It tried to expand aggressively, buying Regal cinemas in the US and attempting to acquire Cineplex of Canada. 

The latter deal was botched, and a lawsuit is ongoing. The result could determine whether Cineworld has to pay $1bn in damages.

Why I’m not selling

While most of the news about the company is negative, I don’t see much point in selling all my shares at the moment. 

There are a few reasons for this. One is that there’s an attractive movie slate on the horizon, with films like Avatar 2 scheduled for release. 

Also, there’s no telling what could happen in the coming weeks and months. While a takeover by a rival, like AMC Entertainment, is speculation at this moment in time, it’s not outside the realms of possibility.

Finally, I’m down so much on my initial investment already, I might as well wait and see if there’s any good news that can come from the business. 

Overall, I wouldn’t yet say that my shares are worthless. I do admit, however, that this might become a reality soon. The business doesn’t appear to be healthy, and it may even be dying. So, while I won’t be selling my shares in a panic, I certainly won’t be adding to my current holding. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Andrew Woods has positions in Cineworld Group. The Motley Fool UK 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.

More on Investing Articles

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

2 overlooked cheap shares I’m tipping to eventually soar

These two cheap shares may not be obvious bargains, but our writer explains the investment case behind buying them for…

Read more »

Investing Articles

1 no-brainer pick I’d love to buy for my Stocks & Shares ISA!

A Stocks & Shares ISA is a great investment vehicle for our writer. Here she explains why, and one stock…

Read more »

Shot of a senior man drinking coffee and looking thoughtfully out of a window
Investing Articles

Just released: our 3 best dividend-focused stocks to buy before May [PREMIUM PICKS]

Our goal here is to highlight some of our past recommendations that we think are of particular interest today, due…

Read more »

Investing Articles

Will the Rolls-Royce share price keep rising in 2024?

With the Rolls-Royce share price going on a surge, this Fool wants to look forward to where it could potentially…

Read more »

Investing Articles

£10k in an ISA? Here’s how I’d target a regular £30k+ second income stream

Reliable dividends can help provide a lot more financial freedom. Here's how I'd aim for a substantial second income inside…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

Lloyds share price hanging on to 50p ahead of Wednesday’s Q1 earnings report. Where to now?

Down in April and with low earnings expected this week, Mark David Hartley investigates where the Lloyds share price might…

Read more »

artificial intelligence investing algorithms
Investing Articles

Everyone’s talking about AI! Here’s 1 FTSE stock to consider buying for exposure

A hot topic right now is artificial intelligence (AI). This Fool explains how this FTSE stock could offer investors an…

Read more »

British Pennies on a Pound Note
Investing Articles

1 penny stock I’d buy today while it is 99p

Ben McPoland highlights Windward (AIM:WNWD), a fast-growing penny stock that could benefit from the artificial intelligence revolution.

Read more »