It’s been a tough few months for the Cineworld Group (LSE: CINE) share price. After hitting 122p a share in mid-March — its most expensive since the 2020 stock market crash — the UK leisure share has endured a slow-motion car crash.
And on Monday, Cineworld’s share price dropped as low as 73.7p, its cheapest for five months. The penny stock’s fallen again on rising scepticism that Britain’s cinemas will return to full capacity from 19 July. Toughening government wording on the usage of face masks is also casting doubts on how eager cinemagoers will be to visit theatres en masse from later this month.
A dip-buying opportunity?
But is this fresh slump in Cineworld’s share price justified? Here’s why the UK share’s recent falls could prove a top dip-buying opportunity:
#1: Covid-19 vaccination rollout continues. The surge in coronavirus cases on these shores has been caused by the aggressive spread of the Delta variant. However, studies show that Covid-19 vaccines have a high rate of success in battling infections. It’s thought then the recent surge in infections could prove only temporary as the government vaccination drive rattles on.
#2: US infection rates remain stable. While Cineworld’s home territory is being smacked by rising coronavirus cases, the number of cases in the US has risen only fractionally by comparison. This is critical for the penny stock as it sources almost 70% of revenues from its North American territory.
#3: Cineworld is investing for the future. The popularity of cinema as a recreational destination has endured for decades now. Indeed, the global box office was running at record highs just prior to the pandemic. And Cineworld for one has invested heavily in its estate to keep the punters rolling in, from refurbishing its sites to investing in cutting-edge ‘4DX’ technology to enhance viewer experiences.
Why I worry about Cineworld’s share price
I don’t think our love of the cinema will perish. People love watching movies on the big screen and a trip to the flicks remains a pretty inexpensive night out. And especially so for holders of Cineworld’s Unlimited membership card. This allows unlimited visits from £9.99 a month, discounted concessions, and other perks.
But will Cineworld be able to thrive again in an era when subscriber numbers at Netflix, Disney and Amazon are booming? As well, changes to the studio system in the wake of Covid-19 threaten to break the monopoly that cinema chains have on new film releases for good. And the recent merger of WarnerMedia and Discovery will culminate in another media mammoth entering the streaming market soon.
This is particularly hazardous given the mountain of debt Cineworld is struggling to pay down. The business has been forced into emergency fundraising over the past year because of its battered balance sheet. And what’s more, the leisure chain could find itself in peril again if a long and bumpy battle against the pandemic transpires.
For these reasons, I won’t invest despite the recent heavy drop in Cineworld’s share price.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Royston Wild has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Amazon, Netflix, and Walt Disney. The Motley Fool UK has recommended the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. 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.