The outbreak of the Covid-19 pandemic sent share prices plunging across the board. Despite the widespread losses in global stock markets, the crash hit certain shares much harder than others. In the depths of the sell-off, the Cineworld (LSE: CINE) share price tumbled by a staggering 88%!
Over recent weeks, global stocks have been rising and Cineworld has been no exception. Since 17 March, the shares have rocketed by 310%. This has left many investors believing they’re too late to the trend when it comes to buying the shares. Nevertheless, I still rate the stock a bargain buy at today’s valuation.
Performance prior to Covid-19
As the world’s second largest cinema chain, Cineworld boasts 9,518 screens across 790 sites in 11 different countries. The group’s empire of cinemas located around the world has enabled the company to cement itself as a trusted brand with a strong customer base. Solid growth over the last decade has propelled the company to the top of its industry and despite competition from online streaming services, admissions remain relatively high.
Prior to the outbreak of the global pandemic though, Cineworld only managed to deliver a mediocre set of results for 2019. On top of this, the company has a concerning amount of debt, which currently stands at around $3.5bn. When the sell-off reached its climax, the group looked in serious trouble and it’s easy to see why. With cinemas closing their doors in March, it looked only a matter of time before the company buckled under the pressure.
Nevertheless, Cineworld has taken the painful but necessary steps to boost its survival chances. Non-essential capital expenditure has been postponed and staff numbers have been reduced. What’s more, the FTSE 250 company recently announced an additional £89.73m of liquidity through expanding its revolving credit facility.
The group has said that this additional liquidity should provide the company with enough headroom to support the highly unlikely event of cinemas remaining shut until the end of the year. However, it anticipates the reopening of all cinemas by the end of July.
Once operations resume, I’m confident Cineworld can continue to grow its business sustainably to provide a superior entertainment experience. What’s more, I like the look of the group’s proposed acquisition of Cineplex in the US, which could prove to be a catalyst for further growth.
Can the share price gains continue?
As previously mentioned, the Cineworld share price has thus far surged by 310% after the market crash. However, since the shares are still down by 50%, it will require further gains of around 100% in order to reach pre-crash levels.
If the company can navigate its way out of the crisis and reinforce its market-leading position in a post-pandemic world, I expect the attractive share price gains to continue. As such, investors who take the plunge today could be set to double their money over the long term.
For this reason, I still rate Cineworld shares a bargain buy as I’m confident the cinema chain can whether the storm. If that’s not the case for you though, I wouldn’t despair. There are plenty of investment opportunities elsewhere.
Matthew Dumigan owns shares in Cineworld. 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.