One of the stocks that has captured a huge amount of retail investor attention this year is Cineworld (LSE:CINE). The business has been a talking point since the pandemic started. However, the focus this year was on how well the cinema operator might bounce back in the post-pandemic period. It hasn’t gone well, with the Cineworld share price down 90% over the past year. Here’s what I think would be needed to see the stock outperform in 2023.
Staying alive
The first major point is simply survival. With a current share price of 4.51p, the market cap is just £63m. Given the size of the company (it generated revenue of over £1.4bn in the last financial year) I think the current price reflects the concern that the business could go bust.
Clearly, there are valid reasons for this given the filing earlier this year for bankruptcy proceedings in the US. Yet a settlement in November meant that it was able to borrow more money alongside repaying $1bn of debt. The share price jumped 132% in a week on that news.
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I think it’s clear that the business is really struggling financially, despite short-term boosts such as the court ruling. If by some means that company manages to keep plugging short-term holes and in the meantime has a great H1 next year for revenue, the tide could turn.
However unlikely this might be, it’s a possibility. This would certainly mean a large move (if the 132% jump is anything to go by) for the stock if investors become more comfortable with it.
Finder a potential suitor
Another catalyst that could drive the Cineworld stock higher would be speculation of a takeover. In recent weeks, there has been some chatter about Vue being interested in making a bid. At the moment this is just gossip, with little I could find of any tangible details.
However, if more serious options are on the table next year, it could trigger a share price spike. The share price would likely move towards the offer price. As any deal has to be sweet for shareholders, it’s usually at a premium to the current price.
But that’s not a reason to make me buy the stock now. I’m not in the business of buying for a speculative deal that may or may not happen.
A lot of risk
Finally, progress with the large restructure might be taken in a positive light. For example, if the business vastly cuts costs by closing some sites and focuses on operating more efficiently, the positive impact could be felt relatively quickly.
If shareholders see the restructure progressing well, it could provide them with confidence that the company can turnaround.
Ultimately, I think there’s still a lot of risk associated with buying Cineworld shares now. Next year is a huge unknown, reflected in the low share price. If the company can’t find a buyer, or decides to go it alone and fails, it could all end in tears. As we stand today, it’s too high a risk to make me want to part with my money.
