Should I buy Cineworld shares (LON:CINE) before it’s too late?

The Cineworld share price (LON:CINE) has fallen from its 2021 peak, but it is showing some resilience. What will the second half bring?

| 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.

In March, the Cineworld (LSE: CINE) recovery appeared well on track. Since October 2020, the Cineworld share price had multiplied a massive eightfold. It had gone from just over 15p to almost 125p in little more than five months.

But Cineworld shares have since lost almost half of that peak valuation again.

I do think it’s easy to lose the bigger picture, and see Cineworld’s woes as being entirely caused by the pandemic. Over the past two years, we’re looking at a 73% loss. And the shares were already on their way down before Covid struck. In fact, they had been declining steadily for almost a year before the 2020 crash.

Cineworld shares support?

But looking more closely at Cineworld in 2021, I can’t help thinking I’m seeing a bit of investor support building up. Though the Cineworld share price has fallen again, it does seem to have steadied close to its early 2021 levels. And at 65p, it’s still a good bit higher than the lockdown low.

Cinema audiences getting back to 50% of pre-crash levels will have lent some support. But first-half results released in August showed the pressure on Cineworld’s bottom line. The company saw revenue of only $293m. That’s down from revenue of $712m in the first half of 2020, a period that itself was hit by closures.

It should be just a short-term drop, mind. And I expect the second half to paint a better picture. But Cineworld’s debt figure does throw any thoughts of revenue improvements into context. At 30 June, net external borrowings (less cash) stood at $4.63bn. That was an increase from $4.55bn at 31 December.

Sufficient liquidity?

Cash burn was going at approximately $45m per month. But the company had $437m cash on the books in June. And it’s since added another $200m loan in July. So, I don’t see any pressing need to panic over liquidity. I reckon Cineworld almost certainly has enough to keep it going until it reaches profits and positive cash flow again.

Once we pass those milestones, I can see Cineworld shares getting a boost and taking off. H2 results, I reckon, could provide a happy day for shareholders. Me? Well, I’ll need to work out an enterprise valuation estimate once I see the full-year figures. That would include debt, cash, and everything.

Big picture

But even then, I can’t help feeling we could still be missing the bigger picture. The steady move towards home entertainment has received a massive boost from the pandemic lockdown. I personally love the cinema experience. And I don’t do Netflix, or Amazon Prime, or any of those things. So I’ll be back.

But I’m not typical. And I reckon a huge number of people will have turned towards home delivery of content over the past couple of years and won’t be changing back.

In summary, I think Cineworld is a good company and Cineworld shares could be in for a decent 12 months. But it’s in a declining industry, and I try to avoid those.

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. Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Amazon and Netflix. 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

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

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

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »

Investing Articles

Investing £5 a day could help me build a second income of £329 a month!

This Fool explains how £5 a day, or one less takeaway coffee, could help her build a monthly second income…

Read more »