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The Cineworld share price has soared 300%! Should I buy now?

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The Cineworld (LSE: CINE) share price has risen in value by around 300% since the beginning of November. This outstanding performance puts the stock in the ranks of the best-performing London-listed firms over the past six months. 

Unfortunately, this performance only tells us part of the picture. Over the past 12 months, the stock is off around 41%. Investors who were unfortunate enough to buy the stock close to its five-year high of around 324p in mid-May 2017 have seen a loss of approximately 70%.

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Still, past performance should never be used as a guide to future potential. As the world looks forward to opening up and moving on from the coronavirus crisis, the Cineworld share price, and other companies like it, could continue to move higher as profit and revenue growth returns. 

As such, I’ve been taking a closer look at the stock to see if it could be worth adding some shares to my portfolio today. 

Cineworld share price outlook 

Under the current UK reopening plan, all coronavirus restrictions will be lifted by the middle of the summer. That suggests Cineworld will be able to open its theatres in the UK by this date.

However, just because they’re open doesn’t mean customers will return. What’s more, the group has operations around the world. So, even if the UK manages to stick to its plan, it could be some time before all of Cineworld’s venues are back in business. 

Even then, it could be years before customers feel comfortable enough to return. That could mean it will take years for the firm’s sales to return to 2019 levels. Indeed, they may never return to this level. 

Of course, that’s the worst-case scenario. In the best case, consumers could return quickly and splurge funds saved throughout lockdown. Some economists are already predicting a significant increase in consumer spending when lockdowns are lifted due to pent-up demand. 

In this best-case scenario, the Cineworld share price may increase further from current levels. But there are other risks to the company’s success. It has a lot of debt, and the rise of online streaming has drawn customers away from cinemas. 

Big payout 

Management seems optimistic the group will be able to return to previous levels of activity. It recently put in a bonus scheme that will pay out a total of £208m if the Cineworld share price returns to 380p in three years. 

This provides an enormous incentive for management to drive the share price higher and create value for shareholders. 

Overall, I think the Cineworld share price could produce large returns for investors, even after its recent performance. However, these returns are far from guaranteed. As such, I think there’s too much uncertainty surrounding the outlook for the business for me to buy the shares.

So, I wouldn’t buy the stock right now. I want to wait and see how the reopening of the economy goes and its impact on Cineworld before taking a position.

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Rupert Hargreaves 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.