Why were Cineworld shares up almost 50% today?

Is the positive news regarding a Covid vaccine really enough to drive the Cineworld share price up so much?

| 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.

Yesterday saw some crazy moves in the stock market. Positive news from Pfizer regarding its Covid-19 vaccine had everyone buying or selling en-masse. Companies that were doing well because of Covid collapsed, while those suffering railed. Even so, I had to ask myself this morning, why is the Cineworld (LSE: CINE) share price up so much today?

Good news but not great

Before considering Cineworld specifically, it is worth looking at the Pfizer news. It is certainly a good interim result for one of the many vaccine possibilities, but things are still far from certain. At best, the vaccine can start to be administered to those most in need at the end of this year/start of next. It will be a while yet before the general population start to be inoculated.

Considering the stock market, most companies will still be seeing the same benefits or problems that Covid was causing for some time to come.

However…

There has been talk that vaccines would take longer than expected to produce. There have even been growing concerns about their effectiveness after a number of patients have reported catching Covid twice. It may be a little soon to rally so much, but it is good news nonetheless.

I think that of all the firms suffering from Covid, Cineworld may be one that should see some immediate benefit.

So why were Cineworld shares up so much?

Firstly, a vaccine should allow us all to return to our normal, cinema-going routine. Cinemas have an additional benefit, though. They have been suffering largely due to movie studios postponing releases of big hits.

The latest James Bond film has been the most noteworthy example. Movie studios want big box office numbers for their largest releases. No point doing this in lockdown. If and when a vaccine moves into production, cinemas are likely to see an influx of big hits.

A swathe of new mega-hits will see even greater numbers go to the cinema than normal. Combined with our natural inclination to go out more after a year of being locked down, 2021 could be a good year for Cineworld. To an extent, it may just warrant the share price being up, for now.

Can it last?

As an investment, though, I will be cautious. Though 2021 now seems like it may be a good year for cinemas, the long term is not so clear for Cineworld.

It is already set to breach loan covenants at the end of this year if its financials don’t improve. This latest lockdown will not be doing anything to help this, though its creditors may be more forgiving now its future looks brighter.

Even so, Cineworld already had a large amount of debt going into 2020. Coronavirus and lockdowns have only made this worse. It is also worth noting, of course, that because its shares are up so much on this news, any chance of a bargain for investors has pretty much disappeared, though its gains reduced to just shy of 20% as the market closed.

I think this news is positive for Cineworld, but perhaps not to the extent where its share price should be up quite so much. That said, I think next year could be a good one for the company if it can hold out long enough.

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.

Karl 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

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

Is now the time to buy BP shares? Here’s what the charts say

The best time to buy shares in a company is when they’re trading at a discount. But the future is…

Read more »

Investing Articles

Here’s how I’d use £50K to aim for a million when the stock market crashes

Seeing a stock market crash as a buying opportunity could prove lucrative for a well-prepared, long-term investor. Christopher Ruane explains…

Read more »

Stack of one pound coins falling over
Investing Articles

It’s up 27% with a P/E of 9! I’m considering the potential of this blossoming penny stock

Despite several years of losses, this UK penny stock has an impressive valuation. I’m looking to see if it could…

Read more »

US Stock

The Nvidia share price falls! Here’s what I think happens next for the S&P 500

Jon Smith reviews the overnight results from Nvidia and explains why this could stall the S&P 500 performance through to…

Read more »

Investing Articles

Down 15% today, is this FTSE 100 share too cheap for me to miss?

JD Sports' share price has tanked after the FTSE 100 share released another profit warning. Is this the opportunity I've…

Read more »

Investing Articles

Up 8% today, is this FTSE 100 growth stock a slam-dunk buy for me?

Halma's share price is soaring thanks to another headline-grabbing trading update. Is the FTSE 100 stock now too good for…

Read more »

Investing Articles

With a P/E ratio of just 10.5 is now a brilliant time to buy a cut-price FTSE 250 tracker?

Harvey Jones says a recent dip in the FTSE 250 leaves the index trading at bargain levels. One stock in…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

To build a passive income flow, I’d follow this Warren Buffett approach

Warren Buffett has set up passive income streams most people can only dream about. Our writer sees some practical lessons…

Read more »