Cineworld share price: no mercy

Actually, ‘lost momentum’ is putting it kindly. By yesterday’s close, the Cineworld share price had plunged 33% in just one month.

One reason is a simple lack of demand at its sites, at least relative to how things used to be. Not that this is all that surprising. Despite screens being open for some time now, the movie slate has remained fairly subdued. Blockbuster Fast & Furious 9 is perhaps the only film that’s really brought people back. Production of some nailed-on successes, like Mission Impossible 7, has also been delayed. Again. 

On top of this, the once-mighty mid-cap has all that debt creaking away on the balance sheet in the background. Even the rise and rise of meme stock and industry peer AMC Entertainment across the pond can’t revive the Cineworld share price by association.

However, it’s not necessarily all doom and gloom. The new James Bond film should provide a welcome boost to revenue when it finally arrives in September. A sequel to Top Gun should hit screens in November.

One might also say that the ongoing heavy shorting of Cineworld shares may work in the favour of those already invested if the company is able to surprise on the upside. Should this happen, a ‘short squeeze’ would be very likely, further boosting the Cineworld share price.

The key word there is ‘surprise’. Right now, I’m not exactly optimistic. 

A better bet?

If I were looking to invest in an eventual rebound in cinema visits, there is another option available to me on the London market: 33-site independent cinema group Everyman Media (LSE: EMAN).

In contrast to the Cineworld share price, Everyman’s shares have also held up fairly well recently. They’ve traded around the 150p mark since March this year and are up almost 40% since July 2020. The fact that the firm doesn’t appear to be in quite the same level of distress as its larger peer might be a reason. 

On the flip side, it’s clear that Everyman still faces similar hurdles to Cineworld. The popularity of streaming services offered by Amazon and Disney shows no signs of abating. In fact, a rise in infection levels could force people back to their TVs in the evenings. The good weather we’re experiencing is also pushing people outdoors, making a trip to a dark, enclosed space less attractive.

A further risk to owning Everyman stock is the firm’s small-cap status. As a general rule, minnows tend to be more volatile than large-cap stocks. This is especially true for stocks with a small free float (the percentage of shares available on the market). At 43%, this is very much the case with Everyman.

Horror show

Faced with a choice, I’d probably be more inclined to buy Everyman stock at the current time. Even so, I can’t help thinking there are far less frightening destinations for my cash right now. Undervalued or not, Cineworld remains in my ‘too scary’ pile. 

The post The Cineworld share price is down 33% in one month! Should I buy? appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Paul Summers has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Amazon and Walt Disney. The Motley Fool UK has recommended the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. 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.

Since the end of January, the AMC (NYSE:AMC) share price has been a hot topic among retail investors across the world. Subject to short squeeze deliberation triggered by the Gamestop saga, retail investors have been banding together against hedge fund short positions.

However, while many investors are hoping a short squeeze could send the AMC share price rocketing, I also like the look of this stock’s long-term position.

AMC short squeeze history

Firstly, let’s clear up exactly what a short squeeze is. In a nutshell, shorting a stock entails borrowing shares from a broker, betting their price will go down. These shares are then returned at the lower share price, and the difference is pocketed as profit. It is usually done by big hedge funds who take out multi-million short share positions.

However, if the price doesn’t go down, these hedge funds find themselves in big trouble. This is because short sellers exit their positions with buy orders. If these are executed at a higher price than they were borrowed for, share prices go through the roof.

In the case of AMC, things kicked off in late January soon after the Gamestop short squeeze. Retail investors quickly noticed 24% of AMC’s floated shares were held in short positions, so targeted it. By the time markets closed on 27 January over 1bn shares had been traded and the share price inflated over 300%!

There is speculation of another short squeeze as over 37.3m of the 490m floated shares are shorted. In addition to this, the AMC share price has been following an extremely bullish trend, up 42% in the past 30 days. This does point towards the possibility of another short squeeze.

AMC share price future

Though a short squeeze may drive up prices in the short run, there are also reasons why I am bullish on AMC’s long-term value. The cinema chain was decimated by Covid-19 closures, driving down revenues. However, the firm reported that as of March 2020, 527 out of its 589 US theatres were back open. This is great news as boosted capacity means revenues will start to increase again.

In Europe, however, only 27% of cinemas were reported open in the firm’s Q1 results. While this may seem bad in the short term, as Covid-19 restrictions ease across the continent, capacity will continue to grow, driving up revenues further.

CEO Adam Aron highlighted that bankruptcy was also now completely off the table, after raising over $917m of new equity and debt capital. This puts AMC in a strong financial position moving forward past the pandemic.

However, with the streaming industry growing at an accelerated rate, cinemas face stiff competition. Streaming subscriber numbers surged 34% in 2020, with a big part of this attributable to the pandemic. The industry is expected to keep growing by over 20% year-on-year, as companies like Netflix and Disney increase in popularity.

What I’m doing now

As a current investor in AMC, I’m trying to look past the short squeeze speculation. I prefer to invest looking at the long-term value of a stock. I like the outlook for AMC as the cinema is finally opening its doors to customers again. The fact bankruptcy is out of the picture now is a plus too. Therefore, I will be holding for the long term.

The post Why I’m looking beyond the short-term AMC share price appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Dylan Hood owns shares in AMC Entertainment Holdings. The Motley Fool UK owns shares of and has recommended Netflix and Walt Disney. 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.

However, over the last 12 months, it’s still up by more than 80%. So is this an opportunity to add the business to my portfolio at a discount?

The rising Cineworld share price

As the vaccine rollout continues to progress both here in the UK and in the US, lockdown restrictions have begun easing. UK cinemas are set to reopen in May. Meanwhile, Cineworld has already started reopening its locations across America, albeit at a reduced capacity. Given that the US is responsible for generating nearly 75% of total revenue, this is quite encouraging.

Godzilla vs Kong is one of the few films that studios decided to release while many cinemas are still closed. And yet, even though Warner Bros offered a home streaming option, the film still grossed $32.2m in cinemas over its opening weekend. This not only beat expectations, but also set a new record for ticket sales since the pandemic began.

It looks like Cineworld is finally getting some much-needed income flowing back into the business. And with a long line-up of delayed titles like the latest James Bond movie, I’m cautiously optimistic about people quickly returning to enjoy the big screen experience.

The risks are still high

The reopening of cinemas is undoubtedly fantastic news for Cineworld and its share price. But I believe there remains quite a considerable level of risk attached to this company. Most notably, the level of debt.

This is something I’ve previously discussed. As cinemas were closed for a large portion of 2020, Cineworld had to rely on debt financing to keep up with expenses. Unfortunately, this has resulted in total debt & equivalents on the balance sheet increasing to $8.3bn since the start of 2021. That represents around 97% of its capital structure.

I find this degree of financial leverage quite concerning, especially since the firm has limited profits to keep up with incoming interest payments. Even if the reopening of cinemas allows Cineworld to return to pre-pandemic levels of operation, I think it could be many years before its level of debt is brought back under control. During that time, it will likely be unable to continue pursuing its acquisitive growth strategy, as well as limiting the amount of income returned to shareholders through dividends. Both of which are likely to hurt the Cineworld share price over the long term.

The bottom line

Needless to say, I believe that an investment in this business carries a lot of risks. The Cineworld share price does look like it’s on an upward trajectory of recovery. But I think this will be a multi-year process and thus won’t happen in 2021 alone.

Personally, I believe there are far greater investment opportunities available today at a considerably lower level of risk. And so, I won’t be adding the company to my portfolio anytime soon.

The post Will the Cineworld share price recover in 2021? appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Zaven Boyrazian does not own shares in Cineworld. 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.

Staggering loss

The chief reason for today’s fall seems to be due to the numbers being even worse than expected.

Having been forced to close its sites from mid-March last year, Cineworld’s revenue tumbled 80.5% to a little over $852m. There were only 54.4m ticket admissions over the period, compared to 275m over the previous 12 months.

Naturally, this horror show fed down to the bottom line. From making a pre-tax profit of $212.3m in 2019, Cineworld revealed a staggering £3bn loss for 2020.

However, the company did what it could to preserve cash and reduce costs over this period. Even so, it was still forced to seek funding to stay afloat, bringing in just under $811m in additional liquidity. Today, it announced it had secured another $213m from institutional investors to see it through 2021.

So, where next for the Cineworld share price?

Since hitting a record low in October last year, the Cineworld share price has climbed 300%.

As much as I’d have enjoyed such a huge gain, the Foolish philosophy is to buy shares in great companies for the long term. Already heavily indebted before the coronavirus reared its ugly head, Cineworld isn’t a great company, at least in my view. Nor are its prospects good enough to lead me to think that the shares will outperform other London-listed stocks over the next five or 10 years.

Sure, there are some things to be positive on, one of which is the strong movie pipeline. ‘Mission Impossible 7′, ‘No Time to Die‘ and ‘Top Gun 2‘ are all scheduled for release later this year. The belief that there’s a lot of pent-up demand to get back to the cinema also has legs to it.

As the company said today, the theatrical industry in China, Japan and Australia has performed well since those markets reopened. Indications that the psychological impact of the coronavirus hasn’t been long-lasting are encouraging. Today aside, perhaps the Cineworld share price will continue rising over the next few months? 

Opportunity cost

As things stand, Cineworld anticipates reopening its US sites on 2 April. In accordance with Boris Johnson’s roadmap, the UK estate will follow suit on 17 May.

However, if the last year has taught us anything, it’s that nothing’s ever guaranteed. There’s still a chance cinemas might be forced to close again, particularly if recent flare-ups of coronavirus in Europe aren’t contained. Such a scenario would likely require Cineworld to go cap-in-hand to investors for yet more cash. This is probably the other reason why the share price is falling today.

Is this a risk I’d be willing to take? No, especially given the opportunity cost of not being invested elsewhere. There are many great, far less indebted UK companies more deserving of my cash.

Today’s drop in the Cineworld share price may be regarded by some as a chance to get involved before the real recovery starts. For me, however, it’s simply confirmation that the stock is best avoided for those who like to sleep at night.

The post Here’s why Cineworld share price is crashing today appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Paul Summers 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.

What caused the Cineworld share price to fall?

With no new hit films in the pipeline and most people remaining at home to avoid risking falling ill, the business elected to hunker down to try to weather the storm. The most recent estimates suggest that branches will reopen in early Q2 of 2021.

The announcements of several Covid-19 vaccines have been the driving force behind the recent climb of the Cineworld share price. However, even if a vaccine were available tomorrow, I think the stock is in serious trouble.

It owes a lot of money

Before the pandemic, Cineworld was the second-largest cinema chain in the world with over 790 locations. Its vast size originated from a merger and acquisition strategy that management has been employing for many years. 

I’ve previously mentioned my reservations with such growth strategies, and this business is a prime example of why. Cineworld funded these acquisitions almost entirely using credit facilities. As a result, even before the pandemic hit, the firm had over $7bn of debt.

Alone this means nothing. However, over the same period, operating profit was a mere £725m. Of that, £499m went to cover interest payments. So, Cineworld spent over half its underlying profits to cover its debt obligations, with virtually no reduction to the principal owed. This does not bode well for the Cineworld share price.

Cineworld is still borrowing more!

Today, the situation is much worse. While closing branches certainly reduced operating expenses, the fixed costs, such as rent and utilities, haven’t gone anywhere. Cineworld has been negotiating with landlords for a temporary reduction on its leases. But it’s still unclear whether this will bear any fruit.

With no revenue, the business once again is having to rely on additional debt financing. It recently secured a new $450m loan to see it through the winter, as well as lift the covenants on its existing debt until June 2022. Now Cineworld owes nearly $8.5bn, with debt representing 87% of the firm’s capital structure.

This is a huge red flag in my eyes. Debt covenants are put in place to protect debt holders. They are restrictions designed to prevent the borrower from becoming overleveraged. Given the firm can barely keep up with existing interest payments, the additional debt is only going to add more pressure on the bottom line.

Is the current Cineworld share price a trap?

I think the Cineworld share price is almost definitely a value trap, and I will be avoiding it. Beyond the debt problem, Cineworld is currently being sued for backing out of a $2.8bn acquisition before the pandemic hit.

I would not be surprised if the company declares insolvency in the near future. If it does miraculously survive, I believe it’s going to be a long time before the share price returns to pre-Covid-19 levels.

The post The Cineworld share price is up 98% this month. Here’s what I’m doing appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Zaven Boyrazian does not own shares in Cineworld. 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.

That slide is likely to continue today too. It seems that Cineworld is looking to close all of its cinemas across the UK and Ireland — temporarily for now. That means all 128 of them. This is obviously a disaster for Cineworld. Its business model is totally reliant on customers paying for tickets and snacks and refreshments. There’s no digital option for it. To make even matters worse, the company is looking to close all of its 536 US cinemas too.

Why are they closing?

Cinemas across the country had been eagerly awaiting the latest releases – and one film stood out above the rest. The latest James Bond movie – No Time To Die – was due to be released in November. It has already been delayed, having been previously planned for a spring 2020 release. Cineworld was confident that a release of this calibre – with the cultural significance that Bond has in the UK – would breathe new life into the business.

As you’ve probably guessed, those hopes have been dashed. The release of No Time To Die has been delayed again, until an unannounced date in spring 2021. In response, Cineworld is drawing up plans to close cinemas until such a time when new films like the next Fast & Furious will finally be released. It’s highly likely that the share price will be majorly impacted by this news when the market opens this morning.

What next for the Cineworld share price?

For me, there’s plenty of reason to be concerned for the company’s future. It’s not just Covid that’s crushing the share price. Streaming services like Disney+ are landing heavy blows on the cinema industry. Streamers are releasing their new films directly on their services, taking away the once exclusive monopoly that cinemas once enjoyed. Another kick in the teeth for Cineworld is that it had until recently been on an acquisition spree, loading up with debt to become one of the largest cinema chains in the world. Now all these cinemas have to close. But the debt can’t be closed with them. That debt is staying.

Cineworld had already announced losses of £1.3bn in the first half of 2020. What next? It doesn’t look pretty. So, when you see the Cineworld share price going further and further down, that might be because the outlook keeps getting bleaker and bleaker. A search for more financing is quite likely.

However, if the company can ever get back to its previous revenue (a big ‘if’, with the trend towards streaming well established) then perhaps it would have been a good idea to get in when things were looking at their worst. That said, it’s hard to find an industry that has been hit harder and one for which the future looks as tough as it does for cinemas.

The post What next for the Cineworld share price? appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Toby Aston 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.