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1 bargain stock I’d snap up before lockdown ends

Cineworld Group (LSE: CINE) has had a tough couple of months as the coronavirus has forced the closure of all 787 of its cinemas. Its share price fell by 90% in March, to a low of 18p.

The pandemic has made most entertainment and hospitality companies’ stocks pretty unattractive recently. But with countries like Spain announcing the gentle easing of lockdown measures, could we be about to see Cineworld claw back a big chunk of its value? Despite Netflix’s best efforts, we are all sick of being stuck at home. And one of the first outings (for couples and families alike) may be a night at “the pictures”.

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Cineworld’s survival plan

Like many income stocks, Cineworld has suspended its dividend during the pandemic crisis. This is obviously bad news for an investor. But it shows the company’s priorities are on survival and positioning itself for a brighter future. With its cinemas closed, there aren’t any earnings to pay dividends with! And if there’s no company left at the end of this, there’ll be no dividends anyway.

But bosses at Cineworld have already revealed a survival plan including deferring their annual salaries and bonuses for a year. This – coupled with the hope of the restrictions being lifted – has led to an upswing in price to around 70p. Yet at this level, the price-to-earnings ratio is still only 6x. If the lockdown ends soon and Cineworld gets back to business, there could be a large profit to make from its recovery. Just one year ago, the stock was trading at 322p!

Streaming wars

Some film studios have released films directly to streaming sites since the cinemas’ doors have closed. This is worrying. But Cineworld and its rival, AMC Theatres, have united in retaliation – by banning the studios from showing any films in their theatres. Films released in 2021 will still need theatrical releases in order to be eligible for awards such as the Oscars. And this will surely bring the studios back to the negotiating table. Mooky Greidinger, Cineworld’s chief executive, says it is looking for cinemas to reopen at the end of June, ready for showings of the Christopher Nolan film Tenet – the first significant release since the coronavirus outbreak.

There are legitimate concerns about the level of debt the company is running. The debt-to-EBITDA ratio is sitting at 3.5. And the rise of home-viewing may increasingly become a thorn in the side of the cinema chain in the long term. But this coronavirus pandemic has spooked markets like never before, frightening investors away from the affected industries. However, it has also created bargains and opportunities. Priced at just six times earnings, this company’s stock price may be one such bargain.

Covid-19 has weighed heavily on Cineworld, but I believe – just as the cinema industry flourished after the 1918 flu pandemic – the show will go on. You better take your seat before it starts.

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Toby Aston has no position in any 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.