This is a risky time to go shopping for bargain stocks, even if they look as cheap as the Cineworld Group (LSE: CINE) share price right now.
FTSE 100-listed Cineworld is the world’s second-largest cinema chain. It has more than 9,500 screens in 11 countries including the UK, US, and Canada, all of them closed since the pandemic.
The Cineworld share price is trading at dirt-cheap levels today. It peaked in January at around 220p. Right now, you can buy it for just under 60p. That means it has lost is almost three-quarters of its value. Tread carefully, if tempted. While many shocks rebounded sharply after the stock market crash in March, progress here has been slow.
Two weeks ago, Cineworld had plans to open its cinemas in the UK and US on 10 July, with social distancing measures in place. Today, it pushed that date back to 31 July, despite the government allowing cinemas to reopen from 4 July. Earlier planned openings in other countries will go ahead, though.
The Cineworld share price hangs in the balance
CEO Mooky Greidinger continued to talk up prospects of a summer recovery with a strong slate of films lined up, including Mulan and Tenet. The big question is whether audiences will queue up to be “immersed in the timeless theatrical experience they know and love”, as Greidinger puts it, if the pandemic is not quelled by then. This is mostly out of the company’s hands, making this a difficult stock to invest in right now.
The Cineworld share price is trading at bargain levels. The price-to-earnings ratio has slumped to just 3.3 times, although I’m not really sure that tells us much these days, other than that the group is in an extreme position.
Last week, Cineworld announced it had secured a new $250m debt facility with private investors, which has a maturity of 2023. In May, it agreed covenant amendments and a $110m revolving credit facility increase. This will bolster its balance sheet, although that has failed to tempt investors back.
Stocks like this one, and travel companies such as budget carrier easyJet and cruise operator Carnival, are huge gambles right now. If you dive in and buy the Cineworld share price today, you could be handsomely rewarded if it makes a successful recovery. If not…
This stock could make you rich but…
Many are sceptical that people will want to take a chance by returning to the cinema. I’m not so sure. The public is hungry to get out again and have some fun, especially younger people. The streaming bug cannot quite replace the popcorn experience.
However, Cineworld still faces the extra cost of enforcing sanitary measures, while box office will be down due to smaller, socially distant audiences. It also faces the threat of a second wave of the pandemic.
This is reflected in the Cineworld’s rock-bottom share price. If you want to take a chance on a dirt cheap FTSE stock, this could be your opportunity.
It is very risky, though.
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Harvey Jones 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.