I think the Cineworld (LSE: CINE) share price has turned a corner. I do not say that lightly.
For the past few months, I have been quite critical of the business. Its looming debt pile is concerning, and it is still not clear if consumers will return to theatres in large enough numbers to drive profit growth.
So, if the company is still facing significant challenges, why have I changed my opinion on the business in the space of a week?
Turning a corner
Over the past few days, the sales figures for the latest James Bond instalment, No Time To Die, have been rolling in. The film smashed box office records in the UK, taking £25m in just three days. Immediately after these figures were released, the Cineworld share price jumped.
The film took a more muted $56m from 4,407 theatres in the United States and Canada, but it has generally been well received around the world.
These figures suggest to me that Cineworld has received a cash infusion from the film, which it desperately needed. Not only that, but the numbers show that the cinemagoers are cautiously returning.
I think this is important for two reasons.
First, it will show film producers that the market for straight-to-streaming films has limited scope. It worked during the pandemic. However, the success of No Time To Die shows there is still a market for blockbuster releases. This should encourage production houses to move more releases back to theatres.
Secondly, the film’s success should prove to Cineworld’s creditors that the company is still worth backing. This will be vital when the group comes to renegotiating its obligations.
I believe both of these factors removed some of the heat from the Cineworld share price. The blockbuster success should show creditors the business is still worth backing. Meanwhile, more film releases should encourage more customers back into theatres. The numbers also show that consumers are willing to return to cinemas.
The Cineworld share price outlook
Having said all of the above, there is no denying that Cineworld faces an uphill struggle from here. Its debt mountain means the business has virtually no room to manoeuvre. Further coronavirus restrictions could also setback the recovery significantly.
However, it is now clear to me that the company is heading in the right direction. Further, if management’s plans to raise capital through a US listing or spinoff come to fruition, the group will be able to greatly reduce its debt pile and remove this substantial threat hanging over the Cineworld share price.
Those are the reasons why I would acquire a small speculative position in the corporation for my portfolio today. Due to the risks associated with the business, this company might not be suitable for all investors, as it could be sometime before the group makes a full recovery. In the meantime, there is plenty that could go wrong.
