The last week has seen a near 10% rise in the Cineworld (LSE: CINE) share price. After a poor performance in 2020, with the share price falling over 70%, the major cinema chain saw a decline in revenues after having to close many of its 767 cinemas. However, with the share price up over 7% year-to-date, could the remainder of 2021 see a bounce-back for Cineworld? Let’s take a look.
2020 and the coronavirus pandemic dealt a major blow for Cineworld. The share price fell from 221p to 157p within the year. Revenues in 2020 fell 80%, with net debt rising to $8bn. Pre-tax losses sat at $3bn. These losses, incurred because of the pandemic, will have long-term impacts on Cineworld and will most certainly make a strong bounce back a more difficult challenge. Having this amount of debt is more than likely to have an enduring effect on the Cineworld share price.
To add to this, Cineworld also recently announced it intends to keep social distancing in place, even after the removal of all guidelines on 19 July. While this is clearly positive in the respect it will reduce the transmission of the coronavirus; it means that customer footfall will stay below pre-pandemic levels. This will impact revenues for the foreseeable future. However, from a long-term outlook, this does not pose a major issue.
With all said, there are positive signs when looking at whether to buy Cineworld shares. The continuous rollout of the Covid-19 vaccination programme in its biggest markets (the UK and US) hopefully means that the likelihood of restrictions being placed on Cineworld once again in the future is lessened. The UK and US have 56% and 50% of their populations fully vaccinated, respectively. If vaccine passports are introduced, however, this could be an issue for Cineworld.
To further this, Covid-19 cases are down 30% in the last seven days, and the general market outlook is somewhat up. A near-2% rise in the FTSE 100, which I recently wrote on, reflects this.
Cineworld has also recently expanded, most noticeably with the acquisition of US chain Regal Cinemas for over $3bn in 2018. The debt suffered due to the acquisition may be in part a reason why the Cineworld share price was falling even before the pandemic, and therefore why shares are priced so low compared to previous times. Although this may seem like an issue, the idea of expansion – from a long-term outlook – means Cineworld at its current price could possibly provide a great opportunity.
As much as I like Cineworld and think that as we slowly return to normality this will be a major boost for the firm, I think the future is too uncertain. Its acquisitions have long-term potential, but at a time when we are still dealing with a pandemic, the levels of debt it finds itself in fills me with doubt. As cheap as the Cineworld share price currently is, I wouldn’t buy the stock now. I intend to keep Cineworld on my watchlist for the rest of 2021 and make a definitive decision then.
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Charlie Keough 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.