Should I buy Cineworld stock after its stunning resurrection?

The share price of the struggling cinema chain ended last week 132% higher. Should I buy Cineworld stock in case it keeps rising?

| 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.

Autumn season in the night sky

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.

The Cineworld (LSE: CINE) share price is down 82% so far this year. However, like a scene from a zombie film in one of its locations, the cinema chain’s shares sprang back to life last week. This was after the company announced it had reached a settlement with landlords and lenders. Does this news mean I should buy Cineworld stock?

What happened?

To recap, Cineworld Group filed for bankruptcy protection in the US in September. At the time, it had less than $4m in cash on hand. And it didn’t intend to make any more rent payments until the end of its bankruptcy proceedings.

However, the deal announced last week means the company is free to borrow an additional $150m and make a $1bn debt repayment. As part of this, it will pay $20m of rent.

While this is good news, it doesn’t change the outlook for Cineworld. The company has a massive amount of net debt (around $8.8bn) on its balance sheet. And this could still drive the business into extinction sooner rather than later.

The big picture is bleak

The UK cinema industry declared the first Saturday of September this year to be National Cinema Day. The cost of entry was £3 per ticket, which was the same price as the mid-1990s. That shows how desperate the situation is for the sector nowadays.

Vue, the UK’s third-biggest chain, is also being forced to go through a major restructure to keep going.

In the US, box office sales peaked in 2002 at 1.58bn tickets. By 2019, sales had dropped 22% to 1.23bn tickets, despite 17 years of population growth. That means, on a per-capita basis, ticket sales plunged by 31% in less than two decades.

Then came the pandemic, which totally destroyed the finances of most cinema operators.

This decline in cinema-goers might make studios reassess whether it’s still worthwhile releasing films in theatres at all. For example, Disney could one day just release all its films straight to its Disney Plus streaming platform. Personally, I think this straight-to-streaming model is where things are heading over the long term.

That being said, I think cinemas will always hold a certain appeal for some people. But I don’t think that’s enough to prevent the overall industry decline. For the same price as a one-off visit (with popcorn and drinks), I can subscribe to Netflix or another streaming service and instantly access thousands of films.

Should I buy the stock?

I think it’s far too risky for me to invest in Cineworld shares. The company’s debt pile is colossal. More importantly, this is a business caught on the wrong side of changing consumer behaviour.

That’s not to say I couldn’t possibly make a profit here and there if I were to trade in and out of the stock. The shares are likely to remain volatile as long as they’re around. However, as a long-term investor, I have no real interest (or skill) in capitalising on day-to-day share price movements. That’s not the way we do it at The Motley Fool.

There are plenty of quality stocks with bright futures in the market today. I’m more interested in adding those to my portfolio right now.

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.

Ben McPoland has no position in any of the shares mentioned. 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

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

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »

Investing Articles

Investing £5 a day could help me build a second income of £329 a month!

This Fool explains how £5 a day, or one less takeaway coffee, could help her build a monthly second income…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

2 FTSE income stocks investors should consider buying in April

Income stocks are a great way to build wealth. Our writer details two picks she believes investors should consider snapping…

Read more »

Investing Articles

What might the 5-year price chart tell us about BT shares?

Christopher Ruane considers what clues the long-term performance of BT shares might offer him about business performance and whether to…

Read more »