The Cineworld (LSE: CINE) share price has moved higher over the past two months as the UK economy has reopened. Since the beginning of February, shares in the company are up around a third.
However, despite this performance, they’re still trading at a discount of around 55% to their year-end 2019 level. But I think the stock has the potential to move higher in the near term. Today, I’m going to explain why.
Cineworld share price outlook
After a year of stop-start openings, it finally looks as if Cineworld is starting to get back on its feet. The company recently opened its theatres in the US, where it makes around three-quarters of its sales.
Although these theatres are limited to two-thirds capacity, they’ve started to bring in some much-needed revenue for the group.
Over the Easter weekend, the firm benefitted from the launch of Godzilla vs Kong, which raked in £23m in the US over its three-day opening weekend.
Granted, this wasn’t the biggest debut weekend haul. However, it proved that consumers still want to use cinemas as the film was also available on streaming services.
I think this shows that despite all of the headwinds facing Cineworld, customers will return when it opens its UK theatres on 17 May.
Unfortunately, it’s challenging to tell what sort of impact this will have on the Cineworld share price. Initial indications show that consumers still see value in cinemas. But the big question is, will they ever return in numbers large enough to help the company recover?
That’s the big unknown. If they don’t, Cineworld could face an uncertain future. It has a tremendous amount of debt, and paying off these borrowings will require large profits. Without enough cash to cover its borrowing costs, Cineworld may run out of money.
Considering all the above, I think the Cineworld share price will continue to climb in the near term as the group presses ahead with its reopening plans.
However, here at the Motley Fool, we’re long-term investors. We’re not interested in what may happen to an investment in the next few weeks, or months. We’re interested in a company’s long-term potential, which means assessing its potential over the next few years.
When it comes to Cineworld, I think it’s impossible for me to say whether or not the company will still be around in five years. There’s so much uncertainty surrounding the business right now. I don’t feel confident speculating or whether or not the corporation will be able to generate enough income to cover its borrowing costs.
Of course, the company may prove its doubters wrong. If customers return quickly to its theatres, profits may rebound, and the business would be able to pay off its borrowings. But based on the information we have now, I think it’s impossible to say if this will happen or not.
As such, I’m planning to avoid the Cineworld share price.
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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.