The Cineworld (LSE: CINE) share price has really been under pressure over the past few months. Since the stock printed a post-pandemic crash high of around 122p towards the end of March, it’s slumped 44%.
The question is, why has the market decided to give the business the cold shoulder, even as the economy has reopened and customers have returned to its theatres?
Cineworld share price under pressure
Towards the end of May, the company published a trading update after reopening its premises in the UK. The update noted that the group had performed “beyond our expectations” as consumers returned to movie theatres in large numbers.
The update also noted that the demand for snacks had been strong as well, leading to robust concession income in theatres.
It’s not just the UK market where the group is performing strongly. Its US business has also benefited from the release of several blockbuster films. And there are more major releases on the horizon, which could underpin the Cineworld’s recovery in the months ahead.
But despite this reopening boost, some of the issues that have plagued the enterprise over the past 16 months haven’t gone away. These include the organisation’s monumental debt mountain and the risk streaming services present to the traditional cinema industry.
I think investors have been selling the Cineworld share price because recent figures show that consumers have been more than happy to pay to watch films in their own homes. More importantly, production companies are becoming more receptive to releasing on streaming services rather than exclusively in cinemas.
This is a considerable threat to Cineworld’s business model. If customers can watch films at home, why would they go to cinemas? If customers aren’t going to the company’s theatres, Cineworld won’t be able to generate enough cash flow to sustain its debt.
Opportunities on the horizon
In the worst-case scenario, the Cineworld share price could collapse if the company’s forced to raise more money from investors to strengthen its balance sheet.
However, there’s absolutely no suggestion the company will run out of money at this point in time. With consumers returning in what appeared to be large numbers, its outlook is undoubtedly improving.
Many consumers prefer to view blockbuster films in cinemas. That suggests there’ll always be a market for the company, even if streaming services continue to grow.
Nevertheless, despite the company’s opportunities, and recent recovery, I think the Cineworld share price could continue to languish. At this point, the firm’s outlook is incredibly unclear. If there’s one thing the market hates more than anything else, it’s uncertainty.
With that being the case, I wouldn’t buy the stock for my portfolio today, even though it looks cheap compared to its trading history.
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.