The Cineworld (LSE: CINE) share price has more than doubled so far in November. But it remains highly volatile and I expect this choppiness to continue.
Having said that, should I — as a long-term investor — consider buying Cineworld shares for my stocks portfolio?
Debt fears ease
To recap, Cineworld’s share price has rebounded as fears over its battered balance sheet have eased.
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On Tuesday it announced it had reached a bankruptcy settlement with its landlords and lenders. This important step means it’s free to borrow an additional $150m and make a $1bn debt repayment.
Under the settlement, Cineworld has to pay rent worth $20m, a turnaround from its previously stated position. The cinema chain hadn’t intended to pay anything until Chapter 11 proceedings (which it filed for in September) had finished.
Up and down
This is clearly good news given the company’s desperate financial situation. It had just $4m of cash to hand when it filed for bankruptcy protection two months ago.
But Cineworld’s soaring share price doesn’t reflect a sudden improvement in the company’s fortunes. The scale of recent gains is thanks to short sellers rushing to acquire shares to close out their short positions.
The truth is that Cineworld remains in dire straits. And its share price drops at the end of the week illustrate this.
Cash burn
The colossal cost of global expansion has buried the business in debt. And following the outbreak of Covid-19 it warned that its future as a going concern was under threat.
A sluggish recovery in the cinema industry means that it’s still struggling to stay afloat. Cineworld suffered cash burn of $144.9m between January and June because of disappointing attendance numbers.
The bad news has kept coming, too. Third-quarter ticket sales were also below expectations, it said in late September. And it predicted that movie attendances would remain under pre-pandemic levels through to the end of 2024.
Long-term uncertainty
It’s no surprise to me that Cineworld continues to strike a sombre tone.
Theatre attendance levels continue to be hamstrung by a dearth of new titles. Well, certainly compared to pre-coronavirus levels.
On the plus side, new entries to the Black Panther and Avatar franchises are tipped to boost fourth-quarter ticket sales. But the worsening cost-of-living crisis could hamper box office takings for such titles.
The long-term outlook for Cineworld also looks bleak as streaming services rise in popularity. Today people can choose from thousands of films via services like Netflix. They can watch these with high definition on state-of-the-art technology without needing to leave their sofas.
Furthermore, changes to the studio model mean viewers don’t need to visit the cinema to catch many of the latest releases. The cinema no longer offers a must-see viewer experience.
The verdict
So I’m not rushing out to buy Cineworld shares. Its ability to deliver attractive long-term growth is highly questionable. And its colossal debt pile (net debt was $8.9bn as of June) means it could even go out of business sooner rather than later. I’d rather buy lower-risk stocks right now.
