With the developed world emerging from pandemic lockdowns, everyday life is set to resume. And one great pleasure of modern life — going to the cinema — is now an option for consumers. So what could happen to the Cineworld (LSE: CINE) share price?
The Cineworld share price collapses
Cineworld is the globe’s second-largest cinema chain. At the end of last year, it had 9,311 screens across 767 sites in 10 countries, employing 30,000 people. However, when Covid-19 lockdowns arrived in spring 2020, the business was taken almost to the brink. With cinemas shuttered, CINE’s sales cratered. Revenues collapsed from $4.37bn in 2019 to $852m in 2020, crashing by more than four-fifths (80.5%). Such a severe contraction proved disastrous for the Cineworld share price.
Two years ago, the Cineworld share price was riding high. On 29 April 2019, CINE shares closed at 321p, close to all-time highs. By the end of 2019, the stock had dropped more than £1 to 219.1p, but the worst was yet to come. During ‘Meltdown March’, the shares closed at a low of 21.38p on 17 March, down more than nine-tenths (90.2%) in 2020. Throughout 2020, there were real fears that the company might not survive multiple enforced shutdowns. Thus, on 5 October, the stock hit a new intra-day low of on
Cineworld comes back from the dead
However, like a zombie in a George Romero horror movie, the Cineworld share price came back from the dead. The shot in the arm was the announcement in early November of several effective Covid-19 vaccines. This breathed new life into the stock. It more than quadrupled from its October trough, ending 2020 at 64.1p. However, as vaccination programmes were rolled out, the shares kept soaring.
On 19 March 2021, the Cineworld share price hit an intra-day high of 124.85p, before closing at 122p (2021’s closing high). What a comeback from the March 2020 lows. But CINE shares have been in decline since then. As I write, they trade at 89.69p, down 35.16p — more than a quarter (28.2%) — from their 2021 high. With the share price falling and seat sales resuming, is now the time to buy CINE?
I like the stock today
As a traditional value investor, I try to stack the odds in my favour by buying into companies with strong cash flows, profits, and cash dividends. Obviously, Cineworld doesn’t currently fit that description. Today, Cineworld has a market value of £1.2bn, but also carries $8.3bn (£5.86bn) of net debt, which is a huge burden. The business lost $3bn in 2020, versus a profit of $212m in 2019. Clearly, getting back to profitability is going to be an uphill struggle for the group. Just a month ago, I passed on buying CINE with the Cineworld share price at 95.66p. But with the shares now trading below 90p, my mind is changing.
CINE now has plenty of liquidity and cash at hand to support it until life returns to a new post-Covid-19 norm. Furthermore, the group issued an upbeat trading update today, confirming that 502 (97%) of its US cinemas are now open. It also confirmed receipt of a $203m tax refund from the US government. And UK ticket sales for children’s film Peter Rabbit 2: The Runaway were strong. Finally, there may be light at the end of the tunnel for Cineworld. For this reason, I would buy CINE stock at the current price as a recovery play.
