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Why were Cineworld shares up almost 50% today?

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Yesterday saw some crazy moves in the stock market. Positive news from Pfizer regarding its Covid-19 vaccine had everyone buying or selling en-masse. Companies that were doing well because of Covid collapsed, while those suffering railed. Even so, I had to ask myself this morning, why is the Cineworld (LSE: CINE) share price up so much today?

Good news but not great

Before considering Cineworld specifically, it is worth looking at the Pfizer news. It is certainly a good interim result for one of the many vaccine possibilities, but things are still far from certain. At best, the vaccine can start to be administered to those most in need at the end of this year/start of next. It will be a while yet before the general population start to be inoculated.

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Considering the stock market, most companies will still be seeing the same benefits or problems that Covid was causing for some time to come.

However…

There has been talk that vaccines would take longer than expected to produce. There have even been growing concerns about their effectiveness after a number of patients have reported catching Covid twice. It may be a little soon to rally so much, but it is good news nonetheless.

I think that of all the firms suffering from Covid, Cineworld may be one that should see some immediate benefit.

So why were Cineworld shares up so much?

Firstly, a vaccine should allow us all to return to our normal, cinema-going routine. Cinemas have an additional benefit, though. They have been suffering largely due to movie studios postponing releases of big hits.

The latest James Bond film has been the most noteworthy example. Movie studios want big box office numbers for their largest releases. No point doing this in lockdown. If and when a vaccine moves into production, cinemas are likely to see an influx of big hits.

A swathe of new mega-hits will see even greater numbers go to the cinema than normal. Combined with our natural inclination to go out more after a year of being locked down, 2021 could be a good year for Cineworld. To an extent, it may just warrant the share price being up, for now.

Can it last?

As an investment, though, I will be cautious. Though 2021 now seems like it may be a good year for cinemas, the long term is not so clear for Cineworld.

It is already set to breach loan covenants at the end of this year if its financials don’t improve. This latest lockdown will not be doing anything to help this, though its creditors may be more forgiving now its future looks brighter.

Even so, Cineworld already had a large amount of debt going into 2020. Coronavirus and lockdowns have only made this worse. It is also worth noting, of course, that because its shares are up so much on this news, any chance of a bargain for investors has pretty much disappeared, though its gains reduced to just shy of 20% as the market closed.

I think this news is positive for Cineworld, but perhaps not to the extent where its share price should be up quite so much. That said, I think next year could be a good one for the company if it can hold out long enough.

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Karl 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.

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