The Cineworld (LSE: CINE) share price is down 82% so far this year. However, like a scene from a zombie film in one of its locations, the cinema chain’s shares sprang back to life last week. This was after the company announced it had reached a settlement with landlords and lenders. Does this news mean I should buy Cineworld stock?
What happened?
To recap, Cineworld Group filed for bankruptcy protection in the US in September. At the time, it had less than $4m in cash on hand. And it didn’t intend to make any more rent payments until the end of its bankruptcy proceedings.
However, the deal announced last week means the company is free to borrow an additional $150m and make a $1bn debt repayment. As part of this, it will pay $20m of rent.
Should you invest £1,000 in Cineworld right now?
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While this is good news, it doesn’t change the outlook for Cineworld. The company has a massive amount of net debt (around $8.8bn) on its balance sheet. And this could still drive the business into extinction sooner rather than later.
The big picture is bleak
The UK cinema industry declared the first Saturday of September this year to be National Cinema Day. The cost of entry was £3 per ticket, which was the same price as the mid-1990s. That shows how desperate the situation is for the sector nowadays.
Vue, the UK’s third-biggest chain, is also being forced to go through a major restructure to keep going.
In the US, box office sales peaked in 2002 at 1.58bn tickets. By 2019, sales had dropped 22% to 1.23bn tickets, despite 17 years of population growth. That means, on a per-capita basis, ticket sales plunged by 31% in less than two decades.
Then came the pandemic, which totally destroyed the finances of most cinema operators.
This decline in cinema-goers might make studios reassess whether it’s still worthwhile releasing films in theatres at all. For example, Disney could one day just release all its films straight to its Disney Plus streaming platform. Personally, I think this straight-to-streaming model is where things are heading over the long term.
That being said, I think cinemas will always hold a certain appeal for some people. But I don’t think that’s enough to prevent the overall industry decline. For the same price as a one-off visit (with popcorn and drinks), I can subscribe to Netflix or another streaming service and instantly access thousands of films.
Should I buy the stock?
I think it’s far too risky for me to invest in Cineworld shares. The company’s debt pile is colossal. More importantly, this is a business caught on the wrong side of changing consumer behaviour.
That’s not to say I couldn’t possibly make a profit here and there if I were to trade in and out of the stock. The shares are likely to remain volatile as long as they’re around. However, as a long-term investor, I have no real interest (or skill) in capitalising on day-to-day share price movements. That’s not the way we do it at The Motley Fool.
There are plenty of quality stocks with bright futures in the market today. I’m more interested in adding those to my portfolio right now.
