Cineworld’s share price: why I would, and wouldn’t, buy this UK share today

The Cineworld share price has been trending lower again in recent weeks as Covid-19 fears have reignited. Is this a top dip-buying opportunity?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The Cineworld Group (LSE: CINE) share price has risen a whopping 62% during the past 12 months. Compare that with the 14% increase which the FTSE 100 has enjoyed in that time.

Investors feared the worst for the cinema operators last year as Covid-19 forced them to shutter their doors en masse. The Cineworld share price suffered particularly badly as its colossal debt pile posed a risk to the company’s very survival. However, prices rose strongly from the autumn on news of successful vaccination developments and the prospect that movie theatres could fling their doors open again before too long.

Looking on the bright side

However, rising Covid-19 cases in Britain means Cineworld’s share price has trended lower again in recent weeks. Does this present a decent dip-buying opportunity for long-term UK share investors? Well there are people who believe the post-coronavirus outlook for the cinema industry remains encouraging.

Analysts at Deloitte certainly believe there’ll likely still be a role for cinema in the post-pandemic landscape. They say movie theatres could experience “a strong rebound” when people feel safe to return, and that “studios will continue to deliver big theatrical experiences.”

Cineworld cinema

They went on to add that “as more streaming services vie for compelling original content, many of the showrunners, screenwriters and actors creating it are still drawn to the prestige of cinema.” Deloitte added though, that operators like Cineworld will have to adapt and demonstrate value versus the at-home market to maintain its longevity.

Why I wouldn’t buy Cineworld shares

I share Deloitte’s belief that cinema will survive the Covid-19 crisis. But I’m doubtful as to whether the global box office will return to record levels seen before the pandemic, given the fierce competition posed by US streaming giants Netflix, Disney and Amazon. This makes me question whether Cineworld can deliver the sort of returns it had in days gone by.

The experts at Grand View Research believe the video streaming market will continue to enjoy explosive growth. They predict the sector will be worth a staggering $224bn by 2028, up from $59.7bn today. They think that technological improvements (like increased use of artificial intelligence in production), along with the rapid growth of streaming on mobile phones, will drive growth. This will give the likes of Cineworld plenty to think about.

Still, the long-term future of the Cineworld share price isn’t my main concern right now. Right now, I’m more worried about the company’s running out of road in the next year or so, given its almighty debt pile. It wasn’t that long ago the UK leisure share was warning it could go out of business. And since then, the amount of debt on its books has risen.

If the coronavirus crisis spirals out of control again, Cineworld could well collapse. I’d much rather buy other UK and US shares right now.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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.

More on Investing Articles

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »

View of Tower Bridge in Autumn
Investing Articles

The FTSE 100 is closing in on 8,000 points! Here’s what I’m buying before it’s too late!

As the FTSE 100 keeps gaining momentum, this Fool is on the lookout for bargains. Here's one stock he'd willingly…

Read more »

Investing Articles

3 ideas to help investors aim for a million-pound Stocks & Shares ISA

The UK has a growing number of Stocks and Shares ISA millionaires, and this plan may be one of the…

Read more »

Illustration of flames over a black background
Investing Articles

2 red-hot UK growth stocks to consider buying in April

These two growth stocks are performing well, but can they continue to deliver for investors through 2024 and beyond?

Read more »

Charticle

Is JD Sports Fashion one of the FTSE 100’s best value stocks? Here’s what the charts say!

The JD Sports Fashion share price remains a wild ride during the first quarter. Could it be one of the…

Read more »

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »