Is Cineworld Group (LSE: CINE) one of the most dangerous shares out there? I sold my holdings in the UK leisure stock just over a year ago. And while Cineworld’s share price rallied at the end of 2020 and the start of 2021, the risks facing the business remain severe.
Latest Covid-19 infection figures in Cineworld’s core markets make for gruesome reading. Soaring cases of the Omicron variant mean infection numbers hit record peaks of 129,471 in the firm’s home UK market on Tuesday. At the same time, cases in Cineworld’s core US marketplace reached new peaks of 512,553.
In this climate the prospect that cinemas will have to close their doors again is very real. But even if Cineworld’s theatres aren’t shuttered, other rules could have a significant impact on the number of people going to the movies.
The requirement for masks to be worn could discourage people from attending in large numbers. Proof of vaccination for people entering all entertainment venues is something else that could smack ticket sales at Cineworld. The latter rule is already in force in some parts of the US.
Debt problems
I divested my Cineworld shares last year as its debts mounted and Covid-19 closed its cinemas. Unhappily both of these problems remain very high risks right now. Much has been made of the company’s net debt mountain in particular, which stood at $8.4bn as of June.
To add to Cineworld’s woes last month, it lost a legal case over its aborted purchase of Canada’s Cineplex cinema house. It’s been ordered to pay a whopping £725m in damages and lost transaction costs. It wouldn’t be a shock to see beleaguered Cineworld slap more debt on the pile or raise cash by tapping shareholders to keep its head above water.
Cineworld’s share price: worth the gamble?
Cineworld’s share price plunged to its cheapest since November 2020 following mid-December’s ruling around 27p. And while it’s recovered some ground to 32p, I wouldn’t be shocked to see it plunge again.
Things aren’t all bad for Cineworld, however. Bubbly box office sales in recent months show that the cinema has lost none of its allure despite the ongoing pandemic. Marvel’s latest superhero flick Spider-Man: No Way Home generated a jaw-dropping $260.1m in the US and Canada in its opening weekend earlier this month. That’s the second-biggest opening weekend in cinema history and follows a string of other highly successful theatre releases in 2021.
Cineworld’s share price looks mega-cheap right now. The penny stock trades on a P/E ratio of just 8.9 times for 2022. It packs a meaty 4.8% dividend yield for the new year, too. But despite these attractive numbers I won’t be buying in: Cineworld’s shares are cheap for a reason. I wouldn’t be surprised to see Cineworld’s share price fall all the way to 0p. So I’d much rather buy other cheap UK shares for my portfolio today.
