The Cineworld share price is down 85% this year! Here’s why it’s my contrarian pick

The Cineworld share price can start improving in the near future despite continued risks, making a fortune for investors.  

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

FTSE 250 cinema stock Cineworld (LSE: CINE) has had an awful 2020. The Cineworld share price is down by around 85% since last November. Entertainment venues have been hit by the double whammy of lockdowns and conservative consumer spending in these uncertain times. Yet, I don’t think it’s a stock to write off.

For one, it looks ridiculously cheap now at sub-30p levels. The way I see it, there’s little to lose in buying this FTSE 250 stock at its current share price. Sure, it might stay at these rock-bottom levels for a while, but I think it will start inching back up. Here’s why.

Better times ahead

I reckon that we’ll get some grip on coronavirus soon enough. City-wide Covid-19 testing has started in Liverpool, which returns results in 20 minutes. There’s even hope that AstraZeneca’s vaccine, currently in trial phase, can become available before the end of 2020. Even if that doesn’t happen, at the very least we can expect a vaccine sooner rather than later. Since Cineworld’s fortunes are directly linked to the lockdown, I’d expect its share price to start rising as the situation gets better.

Next, the broader economic picture is slated to improve significantly in 2021. With an improving likelihood of resolving the Covid-19 crisis, I reckon that forecasts will stay optimistic. Cineworld is a classic cyclical stock, which means that it does better when the economy’s growing and vice-versa. As things get back on track, CINE can revive as well. I like that more than half its revenues are generated in the US, which is not just the largest global consumer market, but it’s also expected to show 3.1% growth next year. 

CINE’s rising debt

However, the big danger to the Cineworld share price is liquidity. According to Fitch Ratings, it could run out of money before the end of the year. Based on this, it has also lowered the FTSE 250 cinema chain’s debt rating. It’s possible, of course, that the company may be able to manage securing more funding to keep going. 

There’s also the possibility of it becoming an acquisition target. In fact, speculation is already doing the rounds since a Chinese entrepreneur upped his stake in the business recently. But even if that were to happen, it’s unlikely that Cineworld will be valued as low as its current share price, especially given its past elevated levels.

In sum

I’m not saying that the Cineworld share price will bounce back to previous highs any time soon. In fact, that’s quite unlikely for now. It’s quite possible that it will start gaining ground, however, in the next few months. This can be as much in anticipation of improvement as on-the-ground increase in cinema activity. 

As an investor, I’m interested in how much my investments can grow. And the Cineworld share price seems to be poised for becoming a growth stock again. Risky, but growing.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Manika Premsingh owns shares of AstraZeneca. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

artificial intelligence investing algorithms
Investing Articles

Should I buy skyrocketing Palantir stock for my ISA in 2025?

This red-hot artificial intelligence share has even outperformed Nvidia so far this year. Is it finally time I added it…

Read more »

Affectionate Asian senior mother and daughter using smartphone together at home, smiling joyfully
Investing Articles

2 of my favourite UK growth shares this December!

These FTSE 250 growth shares offer excellent value right now. Here's why I'll buy them for my portfolio if the…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

10% dividend growth! 2 FTSE 100 stocks tipped to supercharge cash payouts

These FTSE 100 stocks have strong records of dividend growth. And they're expected to keep on delivering, as Royston Wild…

Read more »

Investing Articles

Down 17% in a month and yielding 7.39%! Is this FTSE 100 share a screaming buy for me?

When Harvey Jones bought Taylor Wimpey last year he thought this FTSE 100 share was a brilliant long-term buy-and-hold. Has…

Read more »

Investing Articles

Here’s how I’m using a £20k ISA to target £11k+ in income 30 years from now

Is it realistic to put £20k in an ISA now and earn over half that amount every year in passive…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

If I could only keep 5 UK stocks from my portfolio I’d save these

Harvey Jones is running through his portfolio of top UK stocks to see which ones he couldn't bear to do…

Read more »

Midnight is celebrated along the River Thames in London with a spectacular and colourful firework display.
Investing Articles

I’m aiming for a million buying unexciting shares!

By investing regularly in long-established, proven and even rather dull businesses, this writer plans to aim for a million. Here's…

Read more »

Investing Articles

3 things to consider before you start investing

Our writer draws on his stock market experience to consider a few vital lessons he would use to start investing…

Read more »