Can the Cineworld (LSE: CINE) share price ever get back to its pre-Covid levels? That’s a question some investors might be asking if they try to value the shares after their recent performance.
Unfortunately, there’s no clear answer to this question. The company has been through a tremendous upheaval over the past 12 months. In some respects, it’s now a shadow of its former self, having had to raise hundreds of millions of pounds from investors to keep the lights on and abandon its global expansion plans.
However, right now, there’s a lot of uncertainty surrounding the outlook for the business. As a result, the Cineworld share price is trading at an incredibly low level. As such, I think even a slight improvement in the group’s fortunes could lead to a substantial increase in the value of its shares. Although, of course, there’s no guarantee the company’s fortunes will improve.
Cineworld share price bonus
That doesn’t seem to have put off the company’s CEO and one of its largest shareholders Mooky Greidinger. He recently pushed through a pay deal which could see the CEO and his family receive as much as £65m in bonuses each if the Cineworld share price hits 380p in three years. They’ll receive £33m each if the share price hits 190p in three years. In total, the bonuses are worth £208m.
These are ambitious figures. At the time of writing, shares in the cinema company are changing hands at 76p. If they hit the 380p target, shareholders could be in line for a return of 400%.
Management is clearly incentivised to produce strong returns for shareholders over the next few years. If the Cineworld share price hits 380p, that will take it back above its pre-pandemic high.
Still, this doesn’t guarantee a strong performance. The company has more than $8bn of debt and has already been bailed out once by its investors in the past 12 months. With the majority of its theatres currently closed and no opening date on the horizon, I think it’s going to be sometime before the business can start chipping away at this debt mountain.
That said, some economists have predicted that when the economy begins to open up again, consumers will want to spend. This suggests Cineworld may see a sudden jump in sales. But, as is the case with any prediction, there’s no guarantee these projections will turn out to be correct.
Uphill struggle
So, while management may want to drive the Cineworld share price higher, they face a huge uphill struggle, in my opinion. Just because these bonus targets have been set doesn’t mean they’re achievable.
Personally, I tend to avoid businesses with too much debt, and I think Cineworld falls into this bracket. As such, I won’t be buying the stock for my portfolio anytime soon. I think there’s too much risk here, despite the potential returns on offer if the company does manage to pull through the storm.
