From some perspectives, the Cineworld (LSE: CINE) share price might look cheap. The stock is trading at one of its lowest levels ever recorded. What’s more, if profits return to 2019 levels, shares in the cinema group look like a bargain.
However, I’m not convinced that the business will ever be able to recover to 2019 levels of activity. As such, I think one would be better off concentrating on other companies, with brighter outlooks. Today I’m going to explain why.
Cineworld share price: Downward pressure
To see it through the coronavirus pandemic, Cineworld has borrowed heavily from investors. This has helped the business keep the lights on, but it will weigh on the company’s recovery on the other side.
For example, in September, the group raised $250m from private investors. This came with a hefty interest rate of 11%. That suggests an annual interest payment of $27.5m, which is 15% of 2019’s profit, according to my figures.
These numbers suggest to me that the group’s profit will not return to 2019 levels anytime soon.
But while it could be years before this business recovers from the coronavirus pandemic, other companies are charging ahead. I find these fast-growing businesses much more attractive than the Cineworld share price.
Fast growth businesses
Cineworld’s problems stem from the fact that the group’s theatres have been forced to shut in the pandemic. Magazine publisher Future has had no such issue. Magazine subscriptions can be delivered to consume at home. Meanwhile, the company has been investing heavily in its websites to provide content to anyone anywhere in the world at any time.
These two factors have had a hugely positive impact on the company’s growth during the past few years. Net income has surged from £1.6m in 2017 to £8.1m for 2019. It is projected to rise further. Analysts have pencilled in a net profit of £68m for 2020 rising to £81m for 2021.
And with profits going from strength to strength, Future’s balance sheet is growing stronger every day. In its last trading update, the company boasted a net cash balance of £37m. Compared to the Cineworld share price, I’d much rather own this stock with these attractive qualities in my portfolio.
I’m also keeping one eye on Keywords Studios. Like Future, this video games publisher is expected to report a large increase in profits in 2020. Profits are expected to rise threefold between 2019 and 2020. Cash generation is also strong. Keywords’ balance sheet is stuffed with nearly €70m of net cash.
Personally, I have a preference for companies that have lots of cash on the balance sheet because a business can never have too much cash. Moreover, as holders of the Cineworld share price have unfortunately found out, a lack of cash can make it difficult to navigate crises.
That’s why I’d buy growth stocks Keyword and Future over the cinema operator today. As these companies build on their past success, I think they have the potential to generate large total returns for investors.
