It’s been a spectacular few weeks for the Cineworld Group (LSE: CINE) share price. And its rampage higher shows no signs of slowing down either. It’s up 107% so far in November, boosted by hopes a Covid-19 vaccine could see movie lovers flock back into its theatres in their droves. It’s also rocketed on the steps it’s taken to reinforce its debt-heavy balance sheet.
Another rise in Monday trading has sent the UK share to three-month peaks near 60p per share. I wish I’d clung onto my Cineworld shares a bit longer. I sold them in early October for less than half at what they’re trading at today. But hindsight’s a beautiful thing and timing your trades to perfection is as rare as chickens’ teeth.
A stay of execution?
My decision to sell almost two months ago was built on sound foundations. The latest crowd-pulling Bond blockbuster No Time To Die had just been pulled (again), news that prompted Cineworld to announce the mass closure of its 650-plus cinemas. At the same time, Covid-19 infections were rising at an alarming rate, casting doubts on when they’d be reopened. The UK share was also talking about exploring a wide range of options to fix its battered balance sheet.
The news flow surrounding Cineworld has been much better in recent weeks. But it’s still too early to claim that the world’s second-biggest cinema chain has staved off extinction.
Analyst Ivor Jones of Peel Hunt recently commented that the refinancing news of recent days “pivots Cineworld from the edge of a precipice to having breathing space to get through the winter.” But recent developments over the past month don’t warrant the doubling of Cineworld’s share price. Any delay to the rollout of a coronavirus vaccine could put it back on the brink again.
Cineworld is still high risk
Its balance sheet isn’t the only worry either. The structural problems overshadowing Cineworld’s long-term outlook have worsened by the Covid-19 crisis. Demand for streaming services has rocketed, and studios such as Disney and Universal have already begun overlooking movie theatres entirely to beam their movies straight into customers’ homes instead.
At the same time, the likes of Cineworld have a fight on their hands as other entertainment forms surge in popularity. Video game sales have soared in recent years and Covid-19 has given demand an extra shot in the arm. According to Grand View Research, the global games market was worth more than $150m last year. Compare that to the $42 that Statista says the cinema industry was worth last year. And Grand View expects the gaming market to rise at a whopping compound annual growth rate of 12.9% through to 2027.
Cineworld and other cinema operators face the age-old problem of combating piracy, an issue which has also been soaring again in the Covid-19 age. Clearly, this UK share still faces a significant number of problems in the short-term and beyond. This is why I sold my entire stake last month. And it’s why I’d much rather buy other UK shares in my ISA today.
Royston Wild has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Walt Disney and recommends the following options: long January 2021 $60 calls on Walt Disney and short January 2021 $135 calls on Walt Disney. 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.