Upcoming releases like ‘Joker’ have me excited for this FTSE 250 stock 

This FTSE 250 (LON:INDEXFTSE: MCX) stock could benefit if more people head to the cinema this winter.

| 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.

As the war for digital content and digital streaming subscribers heats up, it’s easy to forget that the vast majority of mainstream movies still open on the silver screen before going digital. The social elements of watching a movie on a big screen surrounded by friends is difficult to replicate through streaming platforms. 

Although cinema attendance has been steadily declining in the US and has somewhat plateaued in Europe over the past decade, the volume of tickets sold could explode with upcoming movie releases. 

A slew of upcoming blockbusters like Joker, Frozen 2 and, of course, Star Wars: The Rise of Skywalker should be great news for theatre owners like Cineworld Group (LSE: CINE). In fact, the company mentions these “highly anticipated” releases as a catalyst for near-term growth in its recent quarterly report. 

Why, then, is the stock down 12.6% since the start of the year? Here’s a closer look at why Cineworld’s stock has been punished this year and why I’m still bullish.

Wrong regions

As I mentioned above, moviegoers in the US have been cutting back for the past few years. Movie attendance hit a 24-year low in 2017 and has barely crept up since, according to data published by the The National Association of Theatre Owners (NATO).

Which is why Cineworld’s decision to spend $3.6bn to acquire Regal Entertainment and enter the American market doesn’t make sense to me. Now, the US accounts for 75% of the group’s sales. Sales in the region declined last year. Box office and admissions were down roughly 18% each. 

Although the group has also recently entered growing markets in Eastern and Central Europe, like Poland, this won’t be enough to offset a steady decline in the world’s largest movie market. Instead, Cineworld should have entered China or India, in my opinion. Movie ticket sales hit 499m in mainland China this year, with Indian consumers collectively spending an estimated $11bn. That’s where the growth is. 

Too much debt

That $3.6bn acquisition of Regal also added to the company’s immense debt burden. The firm is saddled with £2.20 in debt for every quid in equity on its book. According to its latest report, it would take a little more than three years’ worth of earnings before interest, taxes, depreciation and amortisation to cover the debt pile. 

But all these factors seem to have been priced in by the market already. The recent plunge in the company’s stock price has pushed the dividend yield up to 7.7%. Meanwhile, the stock trades at a mere 10% premium to book value per share. 

If highly-anticipated upcoming movies like Joker can get more English-speaking audiences to visit cinemas across Europe and America this year, I believe the market could be compelled to re-rate the stock.  

Foolish takeaway

But while Cineworld Group certainly offers excellent value and a hefty dividend at the moment, I’d rather wait and see how the upcoming movie releases impact the company’s bottom line and debt burden before jumping in. 

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.

VisheshR 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.

More on Investing Articles

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

Fancy a 13.9% dividend yield? Consider these dirt-cheap investment trusts!

These investment trusts are trading at whopping discounts to their net asset values (NAVs). Here's why they could prove to…

Read more »

Investing Articles

If the market shut down for 10 years, I’d be happy to hold these 2 FTSE 100 shares

Our writer reveals a pair of FTSE 100 shares that he reckons are well set up to deliver strong returns…

Read more »

Investing Articles

Surely, the Rolls-Royce share price can’t go any higher in 2025?

The Rolls-Royce share price was the best performer on the FTSE 100 in 2023 and so far in 2024. Dr…

Read more »

A young woman sitting on a couch looking at a book in a quiet library space.
Investing Articles

Here’s how an investor could start buying shares with £100 in January

Our writer explains some of the things he thinks investors on a limited budget should consider before they start buying…

Read more »

Investing Articles

Forget FTSE 100 airlines! I think shares in this company offer better value to consider

Stephen Wright thinks value investors looking for shares to buy should include aircraft leasing company Aercap. But is now the…

Read more »

Investing Articles

Are Rolls-Royce shares undervalued heading into 2025?

As the new year approaches, Rolls-Royce shares are the top holding of a US fund recommended by Warren Buffett. But…

Read more »

Investing Articles

£20k in a high-interest savings account? It could be earning more passive income in stocks

Millions of us want a passive income, but a high-interest savings account might not be the best way to do…

Read more »

Investing Articles

3 tried and tested ways to earn passive income in 2025

Our writer examines the latest market trends and economic forecasts to uncover three great ways to earn passive income in…

Read more »