It was quite the November for Cineworld (LSE: CINE). The FTSE 250 stock saw an over 127% rise in share price as the Covid-19 vaccine raised hopes of the world getting back to normal. The Cineworld share price has risen more in December.
But can it continue to rise higher?
The current status
The reason this question comes to my mind is this. CINE’s share price rise went hand in hand with overall stock market buoyancy. The FTSE 100 index rose by 14% in November alone, for instance. Stocks that were worst affected by Covid-19 have seen a sharper increase than others.
But it’s also true that many of them are facing some serious financial problems as well. These have been met through various kinds of funding options. easyJet has availed of government liquidity support, Rolls-Royce just had a rights issue, and Cineworld has secured easier terms on borrowings.
Crystal ball gazing
As businesses get back on track, their financial issues will start getting resolved. Realistically, however, investors will have to wait for a few years at least before they are back to their pre-Covid-19 financial levels.
It’s also possible that business may never get back to pre-pandemic levels. Just like the lockdown encouraged online shopping, quickening the rise of FTSE 100 grocer Ocado, NASDAQ-listed digital conference app Zoom or streaming services like Netflix, it may have permanently reduced business travel and even cinema footfall.
But the long-term investor in me is positive on the likes of Cineworld. The reasoning is two-fold. One, I’m not sure if a structural change in demand is indeed here. Cinemas as an experience can’t be replicated easily at home.
Movie-watching also doubles up as a social activity. Besides this, some of the biggest budget films of the year, including the latest James Bond have been postponed till 2021 because of Covid-19. I reckon that there will be a lot of pent-up demand when they are released.
Even though smaller cinemas are indeed closing down, I think it’s a little early to write epitaphs for big chains like Cineworld.
Where’s the Cineworld share price headed?
Stock market investors like to be one step ahead. They invest in anticipation of better times. And if there are any stocks right now that are looking at better times ahead, these are the pandemic sufferers. It’s no wonder then, that their prices have risen.
I expect that as long as the Covid-19-related news flow stays positive, markets are buoyant and there are no untoward developments for CINE and its likes, their share prices will continue to rise.
I reiterate when I say that CINE’s share price may not rise to its pre-market crash levels, which was almost three times its current levels. But there is scope for a fair bit of increase in any case. Further, I don’t expect its lenders to come knocking anytime soon. Not before its operations have restarted in earnest. So any possibility of catastrophe is a few years away.
Manika Premsingh owns shares of easyJet and Ocado Group. The Motley Fool UK owns shares of and has recommended Netflix and Zoom Video Communications. 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.