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Why I’d avoid the Cineworld share price and buy this leisure stock instead

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Few sectors have taken a hit like travel and leisure over the last year. Restaurants, pubs, and music venues are just a few that have felt the full brunt of restrictions in attempts to curb the Covid-19 pandemic.

Cinemas are another leisure activity that has been badly hit — currently no cinemas in the UK are allowed to open.

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The Cineworld (LSE:CINE) share price is now trading 60% lower than it was 12 months ago, since restrictions started to affect screenings at its 787 cinemas across the UK, Europe, and the US.

However, its most recent performance shows encouraging signs for potential investors. The Cineworld share price has recovered to gain 72% since mid-November.

That optimism has been fuelled by the development, arrival, and rollout of a vaccine programme to fight against Covid-19. But has the company’s outlook improved enough for me to consider buying the stock today?

Balance sheet issues

It’s no secret that the FTSE 250-listed company’s finances are in a pretty precarious situation. In November, Cineworld announced that it had secured an additional $450m debt facility. It also said that creditors agreed to waive its debt covenant until June 2022.

The company is burning through around $60m per month while its screens are dark. It hopes the new debt package will see it through to a more normal trading environment.

Some will say Cineworld represents a buying opportunity. The Cineworld share price is now valued at around 80p, compared to a high of 320p in April 2019. Today the shares have bounced almost 10% as new optimism about vaccine rollouts boosted travel and leisure stocks.

CEO Mooky Greidinger must be confident about a return to higher than that 320p level. The company pushed through a controversial bonus package last month in which he and brother Israel would receive £33m each if the shares hit 380p.

Quite an incentive, and potential investors can be sure management will do whatever they can to reach that target.

I’m just not convinced. The shares were falling before Covid-19, as cinemas were losing out on customers due to the rise of streaming services such as Netflix. So I wouldn’t be adding Cineworld shares to my portfolio right now.

Premier stock

One leisure stock which I would consider adding to my portfolio, however, is Premier Inn owner Whitbread (LSE:WTB).

I think the outlook for hotels and restaurants is a little more optimistic, particularly for Whitbread. The share price has fallen 21% in the last year, but shown signs of a recovery in the last three months as it has climbed almost 20% in that time. 

The company’s cash situation looks stable given current conditions. It reported having net cash of £40m at the end of 2020. It also has a revolving credit agreement with the government if necessary.

Whitbread announced 1,500 job cuts in its last earnings report amid a “challenging” trading environment. With occupancy levels down as low as 35% there would certainly be risk involved in buying Whitbread shares at the moment.

I would still buy Whitbread instead of Cineworld, as Whitbread is in a better cash position and has shown signs of gaining market share over the last year. The job losses announced were only a quarter of what had been originally expected, indicating the company is more confident about navigating the choppy conditions.

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conorcoyle 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.