Why is the Cineworld share price falling?

The Cineworld share price is falling hard. Will it continue to do so or will it rise from here?

| 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 has dropped 20% in the past month. Its fall is an even more spectacular 75% compared to the one-year highs it saw just a few months ago in March. 

Since cinemas have reopened in both the US and the UK, where Cineworld operates, this is a curious development. I could understand investor nervousness when there was no end in sight for the pandemic. But now that we are increasingly out and about and there has been no material update from the company itself since May, the sharp fall in its share price looks like a contradiction. 

Stock rotation in action

I do believe, however, that there are reasons to be found when we look at the bigger picture. The trend of falling share prices is visible across stocks. Consider the Lloyds Bank share price, which touched a one-year high in early June, and has fallen since. Or the FTSE 250 airline easyJet share price that was at its highest levels in a year in May, and has fallen 19% since. 

It would be tempting to think that this is only the case with reopening, or soon to reopen, stocks, but that is not the case either. FTSE 100 mining biggies like Anglo American and Rio Tinto show a similar pattern in the past few months. And the outlook for metals has been bullish for the past year now. 

This backdrop indicates that investors are probably selling off stocks that rallied in the past few months. And that there is a stock market rotation back to those that have struggled in the recent past, a reversal from the trend seen in November last year. As examples consider the AstraZeneca share that languished for months before it started rising again in March and continues to do so. A similar story is visible for the FTSE 100 utility Severn Trent.

Persistent pandemic

I also believe that some persisting uncertainty about the pandemic could be weighing on investor sentiment. Sure, we have come a long way. But there is still a possibility that we could go back to some restrictions even now. And who knows how that will impact already vulnerable stocks like Cineworld. 

What’s next for the Cineworld share price

I reckon though, that the Cineworld share price can rally from its current abysmal levels again. In fact, I am enough of a believer in the stock to have bought it and now I will buy more of it at a lower price. Here is why. 

First, the nature of stock rotation is such that it comes back to beaten down shares over time. The same can happen in this case. Next, the cinema chain’s results are due next month, which should show some improvement over the past year. Of course it goes without saying that weakness will still be visible, as a legacy of the pandemic, but I reckon it can indicate hope for the future. That can build confidence back up in the stock. 

I maintain that it is a buy for me. 

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, Cineworld, and easyJet. The Motley Fool UK has recommended Lloyds Banking Group. 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

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 »

Investing Articles

Will this lesser-known £28bn growth stock be joining the FTSE 100 soon?

As the powers that be plan a reorganisation of Footsie listing rules, this massive under-the-radar growth stock could find its…

Read more »

Investing Articles

Fools wouldn’t touch these 5 FTSE 350 flops with a bargepole – how come I own 3 of them?

Harvey Jones took a chance on three struggling FTSE 350 stocks in the hope that they'd stage a dramatic recovery.…

Read more »