Will the 45p Cineworld share price ever return to £2?

The Cineworld share price looks cheap after recent declines. However, I’m worried about the company’s future prospects says this Fool.

| 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.

The Cineworld (LSE: CINE) share price looks cheap compared to its trading history after recent declines. And with that being the case, the stock looks interesting to me as I’m a value investor at heart. 

However, I’m worried about the company’s prospects. It seems to me as if the odds are stacked against the business and its plans for recovery in the near term.

Cineworld share price headwinds

The way I see it, three major headwinds are holding back the stock at present. The biggest of this is the fact that most of the firm’s locations are now closed. This is preventing the group from generating revenue. 

Second, debt. Cineworld has a lot of it. It will be hard for it to make a dent in its borrowings at reduced levels of capacity, and impossible if the screens are not allowed to open. 

Third, customers. Any business needs customers to be profitable. Cineworld faces a huge problem here. Aside from the fact that the group’s cinemas are closed, the firm is operating in a rapidly shifting media environment. Streaming is taking over. Consumers no longer need to visit the cinema to see the latest film. Streaming services can provide this service at a fraction of the cost. 

To some extent, the Cineworld share price is tied to new film releases. A good release can make or break the firm’s year. In recent years, it has benefited from a slate of blockbuster films, but there’s no guarantee this will continue. Indeed, several films have gone straight to streaming this year.

I think this shows how little power the company really has, and that’s a concern. In some respects, it suggests the firm is not in control of its own future. 

Uncertain outlook

When evaluating stocks for my portfolio, I like to buy companies with strong competitive advantages and robust balance sheets. Cineworld has neither of these. 

As such, I’m wary about buying the shares. Yes, the stock looks cheap compared to its trading history. However, from a fundamental perspective, it isn’t easy to see where the company goes from here. 

Even if a coronavirus vaccine is rolled out in the next few months, there is no guarantee consumers will return to the group’s screens quickly. What’s more, there’s no guarantee production studios will supply the business with films to show. This makes it very difficult for me to figure out if the company has any future, and if it is worth buying at current levels. 

Therefore, I may avoid the business for the time being in favour of other opportunities. I think it may be more sensible to wait and see how the next few months pan out before taking a position. Even though a vaccine rollout is on the horizon, this does not guarantee that the Cineworld share price will recover lost ground in the near term. 

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.

Rupert Hargreaves has no position in any of the shares mentioned. 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

Investing Articles

Up 26%, can the BT share price really push higher still?

The BT share price has surged on several catalysts in 2024, but there’s evidence to suggest that the stock could…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

What are the best dividend shares to buy right now?

As shares in B&M European Value Retail have fallen, the dividend yield has reached a 10-year high. Should investors be…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

My favourite FTSE 100 passive income stock that keeps the Christmas coffers full

The holiday season is expensive and can leave many consumers struggling to make ends meet. Here’s how I use a…

Read more »

Investing Articles

The latest growth forecasts suggest the Glencore share price will hit 555p!

Harvey Jones has been disappointed by the performance of the Glencore share price since he bought the commodity stock last…

Read more »

Dividend Shares

A closer look at the 11% dividend yield forecast for Phoenix Group shares

Phoenix Group shares have one of the highest dividend yields in the FTSE 100 index today. Could this be a…

Read more »

Investing Articles

If I’d put £25,000 into the FTSE 350 at the start of 2024, here’s how much I’d have today!

Many FTSE shares have rebounded this year as interest rates look set to keep heading lower and market appetite for…

Read more »

Investing Articles

Up 40%, but experts forecast the easyJet share price could soon hit 664p! Time to buy?

The easyJet share price has been flying lately and stock analysts are predicting more fun to come. But there's only…

Read more »

Storytelling image of a multiethnic senior couple in love - Elderly married couple dating outdoors, love emotions and feelings
Investing Articles

Worried about tax raids? Here’s how I’m targeting a £44,526 passive income with shares

Investing in a Self-Invested Personal Pension (SIPP) or Individual Savings Account (ISA) can supercharge one's passive income, says Royston Wild.

Read more »