Cineworld (LSE: CINE) shares are currently trading at 65p. This is a stark contrast to where the stock was earlier in the year, at over 100p. In fact, over the last month, the share price has fallen more than 20% (but is still up 85% during the past 12 months).
So the question I’m asking myself is are Cineworld shares a bargain? I don’t think they are.
While the stock has fallen, I still wouldn’t buy it. I’ve previously commented on some of the problems the cinema operator is facing. And these haven’t gone away.
Debt
One of my concerns about Cineworld is its huge debt pile. Last week the company released a short update saying that it has secured $200m of incremental loans maturing in May 2024. It also said that it has agreed to covenant amendments on certain of its existing debt facilities.
It’s worth noting here that the firm has said the $200m of loans don’t “have a material impact on the Group’s weighted average cost of debt”. In other words, investors shouldn’t be worried by Cineworld taking on this new liability.
But I’m concerned. What this highlights is that it isn’t out of the woods yet. Things are still challenging otherwise it wouldn’t have taken on more debt. It has said that it has enough liquidity for now. But I’ve heard this before and am taking this with a pinch of salt.
I think this is one of the reasons why Cineworld shares have fallen recently. Covid-19 restrictions in the UK have eased and so this should have helped the share price. But it hasn’t so far. I reckon reality has set in and investors are concerned about the long-term implications of the debt pile.
Bright side
It isn’t all doom and gloom. Trading conditions for the firm are improving. Even the company believes that it’s now well-positioned to benefit from the pent-up customer demand.
The other thing that should drive people to watch movies on the big screen is the strong film schedule in the second half of 2021. Let’s not forget that some big movies such as James Bond: No Time To Die are expected to be released in the coming months.
The firm is also going to publish its 2021 interim results on 12 August. It could report better numbers in the second quarter, especially as the film industry is recovering. This could provide a boost for Cineworld shares.
Shorted
But I’m still concerned. According to shorttracker.co.uk, it’s still the most shorted public company on the London stock market. This makes me nervous as it’s clear there are still some investors who are betting that the share price will fall.
Couple this with any negative news, such as taking on more debt, and it’s no wonder why Cineworld shares have been falling recently. I’m not going to dip my toe in just yet.
Should I buy now?
The stock remains on my watch list. While the trading environment may be improving, I reckon the company may still be cautious on its forecasts due to the uncertainty surrounding Covid-19 especially during the winter months. So I’m not buying at the moment.
