Cineworld (LSE: CINE) shares were hit hard during the pandemic. With lockdowns enforced across the globe, the cinema chain was forced to shut its doors for months. As a consequence, the shares fell over 70% in 2020. So far, the picture in 2022 isn’t much better – the shares are down 16% in the last 30 days and over 6% year-to-date.

However, the world is steadily recovering from the pandemic, and consequently, cinema footfall is steadily increasing. This could help Cineworld rebuild its revenues and meet its heavy debt obligations. Therefore, could now be the perfect time for me to stock up on some cheap shares? Let’s take a closer look.

A good buy?

Although the current share price may not reflect it, I do see a number of positives for Cineworld shares. Firstly, it has just undertaken a massive marketing push to try and draw in consumers. Part of this has entailed cutting its prices to £3 per cinema entry, which seems like a great strategy to harness the increased footfall, and set itself aside from the competition. This growth has been supported by a number of high-grossing movies released in 2022, for example, Spider-Man: No Way Home, which was the first film to gross over $1.5bn at the box office since the Covid-19 pandemic.

In addition to this, the most recent trading update — for the six months up to 31 December — reported that group revenues had reached 88% of 2019 levels. This was a huge increase from the 50% reported in July 2021. More specifically, revenues in the US, Cineworld’s largest market, reached 91% of 2019 levels, highlighting an impressive recovery.

Obviously, the shares look cheap. But when comparing them to competition is where I see the real value. Cineworld currently trades on a mere 2.07 forward price-to-earnings ratio. Cineplex, its big competitor, trades on a forward P/E ratio of 33.4. This highlights the massive value that Cineworld shares offer.

Headwinds for Cineworld shares

While Cineworld shares look cheap, there are still some serious risks ahead of the firm.

The firm is still embroiled with a legal battle with its competitor Cineplex after the Ontario Superior Court ordered it to pay over £700m in damages in December 2021. This was mainly due to Cineworld withdrawing from a proposed takeover deal with Cineplex. After the announcement of this news, the shares fell 39% the next day. If the firm loses this battle, who’s to say the shares won’t fall by this magnitude again?

Losing this battle would also add to the enormous debt pile. In my opinion, this is something the firm’s balance sheet simply cannot afford. A primary reason for this is rising interest rates across the world, which will significantly magnify its debts.

The verdict

Overall, I am not comfortable buying Cineworld shares for my portfolio. While the shares are very cheap, I think this is because investors are realising the tough headwinds that Cineworld has ahead of it. In my opinion, it will take time for the firm to overcome these, and hence I will be steering clear in the meantime.

The post Cineworld shares are falling: should I buy now? appeared first on The Twelfth Magpie.

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Dylan Hood 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.

Risks of Omicron

The Omicron variant has put the company’s future into doubt, and over the past month, the Cineworld share price has declined 30%. This is mainly due to fears that demand could be hit. At worst, there’s also the prospect of another lockdown, which could hit the company hard. But is this large share price decline warranted?

The ideal situation for the company is that demand can continue recovering, despite the risks posed by Omicron. This would continue the trend seen over the past few months, with cinema bookings hitting their highest level of growth since October 2019. It even managed to generate positive cash flow in October, and group revenues were 90% of 2019 levels. If similar momentum can continue, I feel the Cineworld share price could soar.

But this is a big ‘if’. Indeed, restrictions have already been announced in response to the new variant, and this includes compulsory wearing of masks in cinemas. This may lessen the appeal of cinemas, and lead to people staying at home once again.

Further, if there’s a new lockdown, the results could be disastrous. This is especially true considering the company’s extreme levels of debt. In fact, in this scenario, insolvency wouldn’t be out of the question. This risk is the reason why the shares have dropped so much recently.

The debt situation

Even before the pandemic, Cineworld’s debt position seemed pretty unsustainable. Yet at least it was profitable then. But operating losses in the first half of the year totalled over $200m. And debt has also continued to soar. In fact, net debt currently totals $4.6bn, far greater than its current market capitalisation of around $700m. As such, even if it’s forced to issue more shares to pay off some of this debt, this is unlikely to make much of a dent in the total. There are also several forthcoming interest payments, and if the company can’t return to profitability, default is a possibility. This could result in insolvency and even see the Cineworld share price fall to zero.

Has the Cineworld share got further downside?

In the case of another lockdown, I believe that the Cineworld share price will fall a lot further. This is one reason why I think it’s so heavily shorted.

But there’s also the chance for the shares to soar. Indeed, before Omicron, the recovery was progressing well. If this recovery can continue despite the emergence of the new variant, I believe the upside potential could be huge. There could even be a short squeeze. I’m not going to buy though, until I can see more evidence that a new lockdown isn’t coming. This is because the risks seem too great right now. 

The post As the most shorted UK stock, has the Cineworld share price got further to fall? appeared first on The Twelfth Magpie.

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Stuart Blair 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.

The primary reason behind the short-term fall is the Omicron variant and the threat it poses to the leisure sector. This sector was hit extremely hard by the pandemic, with lockdowns leading to customer numbers plummeting. However, does this drop present me with a buying opportunity? Let’s take a closer look.

A good opportunity?

Although the Omicron virus does present a risk for Cineworld, it looks as if its impact won’t be as bad as first expected. If this is the case, we could expect cinema capacity to keep climbing back towards pre-pandemic levels. This is something the firm has almost been able to achieve already, with its most recent report showing that capacity for October had reached 90% of the same period for 2019. If the firm is able to enhance its customer capacity throughout 2022, revenues will begin to recover. This could be a real positive for the Cineworld share price.

Assessing Cineworld shares’ value, they do look very cheap to me. Pre-pandemic, the shares were trading at around 180p. They’re now sitting at just 47p. In addition to this, the firm’s price-to-earnings ratio is just 2.5 times. For context P/E ratios below 10 are considered very good value.

Cineworld share price risks

Of course, the Cineworld share price being cheap makes sense. The firm’s most recent results were pretty appalling. For the six months up to June 2021, revenue came in at just $292m, down from over $700m in the same period in 2020 (which was itself very weak). In addition to this, debts have climbed to $4.6bn. Shrinking revenues and growing debts are a red flag for any firm.

The current economic environment also worries me. With inflation on the climb, many investors are expecting a rise in interest rates. The next Monetary Policy Committee meeting will be held on 16 December, where a potential rate decision will be made. If they do rise, it’s likely to magnify the large debts the firm has amassed throughout the past 18 months.

In addition to this, as my fellow Fool Royston Wild pointed out, the number of shares held in short positions has been growing substantially over the past few months. Around six months ago, just over 3% of the shares were ‘held short’. This number has since climbed to 9.4% of total floated shares. The fact that institutional investors are betting on the stock falling doesn’t fill me with confidence.

The Verdict

In my opinion, the risks for the Cineworld share price outweigh the positives. The Omicron variant poses a large risk to the wider retail leisure sector. In addition to this, poor results coupled with large debts worry me. Although the shares do look cheap, I’m not willing to take the risk for my portfolio just yet.

The post Should I buy the Cineworld share price dip? appeared first on The Twelfth Magpie.

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Dylan Hood 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.

Trading update

The recent trading update demonstrated that the troubles Cineworld has faced from the pandemic have continued into 2021. In fact, the firm reported an operating loss of $208.9m, while revenues were just $292.8m. This was mainly caused by the temporary closures of cinemas from January to May 2021, alongside very few film releases.

But while these results were pretty dreadful, the Cineworld share price still rose on the back of them. This was due to a couple of reasons. Firstly, there was an improvement on last year, when its operating loss was far larger, at over $1.3bn. This was partially because there had been asset impairment reversals of $95.6m, showing some increased optimism.

Secondly, investors were also cheered by the possibility of a US listing. This would either be a full listing of Cineworld, or a partial listing of Regal Entertainment. It’s hoped that this would maximise shareholder value, potentially following in the footsteps of rival AMC, which has seen its share price soar 760% in a year to over $50. This was part of a short squeeze.

Accordingly, this could be a catalyst for the Cineworld share price, as it would allow it to shore up its balance sheet through a rights issue. This would also enable it to reduce its huge debt pile. But of course, there’s no guarantee that this US listing will happen, or that it will have a positive influence. Therefore, I’m certainly not buying on this news alone.  

Financial position

The main concern I have with Cineworld shares is the company’s financial position. This is the reason why I think there’s the possibility of the shares heading to zero. Indeed, at the end of June, the group had US term loans outstanding that totalled $3.7bn, a euro term loan of $224m, a private placement loan of $244.5m and a fully drawn revolving credit facility of $449m.

For a company with a market capitalisation of less that £1bn, this is a huge amount of debt. It also leads to very large financing costs, which an unprofitable company may find very hard to keep up with. In fact, interest on these loans totalled $126.6m in the first half of 2021, far higher than the $72.9m in the same period last year.

The loans are also accompanied by several covenants, including one that requires net-debt-to-adjusted-EBITDA to be below 5. Under the company’s base case scenario, these financial covenants would not be breached. Nonetheless, this assumes that cinemas will remain open the whole time, at 90% of 2019 levels in 2022, and 95% of 2019 levels in 2023. Such admission levels are certainly not guaranteed. Therefore, the possibility that covenants will be breached is high. In the worst-case scenario, this would mean that the loan becomes payable immediately. In Cineworld’s current financial position, this would be very difficult, and it could even be one factor that leads to bankruptcy.

Negative shareholder equity

The recent trading update also revealed that it has negative shareholder equity of $280m. This means that its liabilities outweigh its assets, often a major sign of financial distress. As such, even if Cineworld sold off its assets to pay its debt, it would still not have enough. This greatly increases the chances that the Cineworld share price will head to zero. Such a factor is an extremely large risk that I must consider before investing in Cineworld.

Positives

Although there’s a possibility of the Cineworld share price heading to zero, there’s also the possibility of the share price exploding. One major positive is the fact that new films are being released. These include the new Spider-Man in December and the new James Bond at the end of this month. I’m optimistic that this may lead to much-increased demand at cinemas and admissions may be similar to 2019 levels. Hopefully, this may help Cineworld reach profitability at some point, a factor that should send the Cineworld share price soaring.

Recent trading has also been positive, and there have been signs of increased demand. In fact, in the US and the UK, data shows that cinema attendance figures are already back to around 50% of pre-pandemic levels. This indicates that people still want to go to the cinema, and consumer habits have not changed to streaming services for the long term.

Furthermore, at the end of June 2021, Cineworld was operating 98% of their cinemas in the US and 99% in the UK. This implies that normality is starting to resume.

What’s next for the Cineworld share price?  

If things continue to get closer to normality, I cannot see the Cineworld share price falling back to zero. Instead, I feel that there would be room to rise, especially if it returns to profitability. It would also allow it to pay off some of its debt, a factor that’s currently holding the firm back.

But if coronavirus cases continue to increase, Cineworld could be one of the worst affected stocks, especially if there’s another lockdown. In this scenario, there’s a realistic chance that the company could become bankrupt and the share price would fall to zero. In this case, shareholders would be left with nothing. I’m all for taking a risk, but even this is far too much of a risk for me. This means that I’m staying well away from Cineworld, at least until I can see some signs that bankruptcy is out of the question.

The post Is the Cineworld share price heading to zero? appeared first on The Twelfth Magpie.

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Stuart Blair 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.

Since peaking in mid-March at 122p, Cineworld (LSE: CINE) shares have lost 50% of their value. It was expected that the Cineworld share price would boom as lockdowns eased, however, this doesn’t seem to have been been the case. There are a few reasons why this dip could be a good buying opportunity for my portfolio, but there are still long-term risks ahead of the UK multiplex cinema chain.

Pandemic problems

Cineworld shares were hammered by the pandemic. With multiple UK lockdowns, the cinema industry ground to a halt. The 2021 half-year results highlight the continued strain on the firm. Revenue came in at just $293m with a loss before tax of $659m. In addition to this, monthly cash burn was around $45m. Net debt also increased by $81m, reaching $4.6bn.

Another problem the pandemic brought to the fore is the dominance of streaming services such as Netflix and Amazon Prime. As my fellow Fool Gemma Blackwell pointed out, film viewing is now twice as likely on one of these platforms as it is in a traditional cinema. Moving forward, Cineworld will need to find ways to overcome this competition if it wants to stay afloat in the market.

Cineworld shares: bull case

That being said, there are a number of reasons I think Cineworld shares could rise in the shorter term. As we continue to move out of the pandemic, it’s likely that customer demand will pick up again. In fact, Cineworld has already reported attendance figures reaching 50% of pre-pandemic levels. I expect this demand to continue picking up throughout the remainder of 2021.

Another factor driving demand is the line-up of new releases Cineworld has coming up. This is due to a Covid-related backlog of new films from franchises such as The Matrix and James Bond. With many of these films being released exclusively to Cineworld, this sets it aside from online streaming services.

The firm has also been able to effectively rebuild its balance sheet having secured an additional $213m in liquidity. This liquidity will be issued in addition to over $800m secured during the pandemic. While this increases long-term liabilities, it allows the firm to more quickly recover from the virus’s impacts. I expect this to help Cineworld shares in the short term.

The verdict

Cineworld has a long way to go before I would consider adding its shares to my portfolio. The excessive financial strain on the firm won’t be permanently lifted by a temporary increase in demand. In addition to this, I don’t think Cineworld will be able to compete with online giants Netflix and Amazon much longer. Although liquidity help is good in the short term, it only places more strain on Cineworld in the long run. 

The post Should I add Cineworld shares to my portfolio today? appeared first on The Twelfth Magpie.

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Dylan Hood has no position in any of the shares mentioned in this article. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Amazon and Netflix. 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.

Today, I’ll highlight three reasons why next month might be a good one for the stock and its long-suffering owners.

The Cineworld share price: ready to rally?

First, you have the release of the long-awaited James Bond film ‘No Time to Die’. Postponed several times due to the Covid-19 crisis, the new movie will be hitting the silver screen on 30 September.

Importantly, the latest Bond installment isn’t arriving on streaming services at the same time. This is in contrast to the tactic recently used by Disney for films such as Cruella and Black Widow. Such is the popularity of the franchise, I suspect the restriction could see previously nervous fans flock to screenings.

Assuming these experiences are positive, this could mark an inflection point in Cineworld’s fortunes and trading can get back to normal. 

There are other, perhaps more speculative reasons for thinking the Cineworld share price might climb. Any upward momentum could be boosted by a ‘short squeeze’, for example. As things stand, the company remains the most shorted stock on the market.

Third, I also wonder if the end of school holidays (and the advent of colder weather) is another potential catalyst for improved business, since families will be looking for fuss-free things to do at the weekend again. Sensing this, the market could send the Cineworld shares higher in advance.

So, am I a buyer?

In short, no. It’s possible the above may not be enough to truly arrest the downward trajectory of the Cineworld share price. Moreover, I think the company faces a number of challenges beyond September.

#1) No control. Cineworld’s ability to revive itself ultimately depends on something it can’t control, namely the popularity of the movies it shows. I believe the Bond movie will be a huge money-maker, whatever the reviews. But how many other films look like nailed-on blockbusters? A few, but not many, I submit.

#2) Foggy outlook. I’m just not optimistic about the future of cinemas in general. Yes, they’re a relatively inexpensive treat and I don’t think they’ll disappear anytime soon, despite the popularity of Disney+, Netflix and Amazon Prime. However, nor do I expect the sort of growth over the next few years that other listed companies may be able to achieve. With limited capital at my disposal, I’m looking for stocks that will shoot the lights out, not amble along.

#3) Disturbing debt burden. Even if next month does mark a turning point in the Cineworld share price, all that debt is hard to ignore. The potential for the company to list in the US might help, but it does seem a rather desperate move (and might not actually happen). Why would I take on this risk when there are many financially sound UK stocks for me to buy instead?

#4) Traders selling up. Having commanded a much higher price earlier in 2021, I think it’s fair to say that at least some traders are still underwater. As such, any sufficiently strong rise in the Cineworld share price might be sold into. This, in turn, could impede the recovery. Investors will probably need to be patient.

The post 3 reasons I think the Cineworld share price could rally in September appeared first on The Twelfth Magpie.

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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, Netflix, 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.

However, in the past 12 months, the Cineworld stock price has risen 50% from 57p. I’m always looking for cheap shares that can diversify my portfolio. Is Cineworld actually on the rise as Britain reopens, or is it too risky for my portfolio?

A quick glance at Cineworld’s financial situation

Let’s be honest, the cinema industry did not need Covid-19 to put it in a bad position. The sector was already in decline, and the pandemic simply worsened a bad situation. This was reflected in Cineworld’s poor 2020 performance. 

Last year, revenue plunged 80.6% to £852m from £4.3bn in 2019, while losses mounted to a whopping £2.2bn. To keep itself from going completely under, some £810m of new debt was raised. More debt has since been raised, bringing its total to around £6bn.

Cineworld’s share price potential

It’s tough to talk about potential when I see a debt pile that big. The one saving grace that Cineworld has right now is that its UK branches reopened today, 19 May. Having already reopened many of its locations in the US last month, this ‘homecoming’ could go a long way towards recovery. 

Following the success of films such as Godzilla vs Kong in the US, similar expectations have been placed in the UK. Investors will be hoping that pent-up demand for moviegoing after more than a year in lockdown will see plenty of bums on seats. 

It is also my belief that Cineworld could enjoy a Darwinian post-pandemic survival. While many cinema chains will not survive this pandemic, Cineworld could mop up the market share left behind by these closures. 

My concerns about Cineworld’s share price

There are already rumours circulating of the increased severity of the Indian Covid variant. We have already seen in cities such as Glasgow that Cineworld has been prevented from reopening over fears of rising cases. This situation could swiftly escalate, causing more cinemas to close once again.

And even with a reopening, success wouldn’t be guaranteed. Before its March 2020 drop (when it sat at 182p), Cineworld’s share price was already 44% off its 2017 all-time highs of 325p. Streaming has been disrupting the cinema industry for years. 

Even returning to profitability may not be enough for Cineworld to pay off its debt faster than interest accrues at such enormous amounts. 

So, should I invest in Cineworld?

There is a reason that Cineworld is such a heavily shorted stock — so few investors believe it can stage a comeback. I don’t hold out much hope for the cinema industry as a whole, or Cineworld. With such massive debt as well as the looming threat of more lockdowns, it’s a no from me.

The post Will Cineworld shares ever be worth buying? appeared first on The Twelfth Magpie.

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• 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?

Jamie Adams has no position in Cineworld Group. 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.

Problems facing the business

The main problem facing the company is its current inability to make a profit — a big problem, I have to admit! First-half losses last year totalled over $1.6bn, and there are no indications of any improvement since. This is especially true after the most recent lockdowns in the UK.

The sparsity of films being released is also a big problem. For example, the new James Bond has already been delayed twice, and reports state that it may be delayed again until November. When cinemas are able to reopen, there may therefore still be a lack of customers. The continued rise of streaming sites, like Netflix and Disney+, may exacerbate this problem. It’s therefore not a surprise that the Cineworld share price has slumped this past year.

The debt problem

Another significant worry for shareholders at the moment is debt. Whereas some may have praised the company for its debt-fuelled acquisition of Regal in 2018, this looks significantly less shrewd now. In fact, in part due to this acquisition, the cinema chain now has net debt of over $8bn. This is compared to shareholder equity of just $1.3bn. This is clearly a major problem for a company not making a profit right now and has been a major strain on the Cineworld share price.

But the news isn’t all negative. In November last year, the firm was able to issue $450m in debt to help its chances of survival. This debt will also not be called in until 2024. While it adds to the company’s massive debt pile, the Cineworld share price has still been boosted by the news for two reasons. Firstly, it should help the company survive for the short-term future. Secondly, it shows that some creditors have faith that the company will survive, and their loans will be repaid.

Would I buy Cineworld shares?

At 65p, Cineworld shares are heavily discounted, but I don’t think they’re cheap. They have already risen around 150% since their lows in October, and despite the vaccines, the cinema industry doesn’t look set to thrive after the pandemic. I’m optimistic that Cineworld will survive, but it will come out battered and bruised. This is therefore a stock that I’m not touching and will look elsewhere for bargains.

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

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• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
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Stuart Blair has no position in any of the shares mentioned. 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.

Quality matters

Although Buffett looks for cheap shares, he also acknowledges the importance of quality. This is shown by his quote: “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price”.

The first UK share that I think fits well with this quote is Diageo (LSE: DGE). The drinks company has used debt extremely effectively to make a number of shrewd acquisitions. Most recently this has included capitalising on low interest rates and issuing more debt to acquire Aviation Gin. This adds to the company’s enviable selection of different brands, further cementing it as a market leader. Although issuing too much debt can lead to severe problems, these acquisitions have been accompanied by rising profits. I therefore believe that the slight dip in both profits and the share price this year due to the pandemic offers a good time to “buy a wonderful company at a fair price”.

Packaging company Mondi (LSE: MNDI) is another quality UK share. With the continued rise of e-commerce, packaging is big business. This should allow an innovative company like Mondi to continue growing profits, which have already risen to over £1bn. A price-to-earnings ratio of 12 represents a fair price to pay for such a quality company, I feel.

Buying the dip

Buffett also recognises that “the best thing that happens to us is when a great company gets into temporary trouble”. Although I wouldn’t say that Sage (LSE: SGE) is in trouble, its recent share price dip due to a fairly poor 2020 financial performance is still a worry. But this is what makes it a Buffett-type stock. Changes are already coming for the UK tech stock, and I think this “temporary trouble” makes it a great time to buy.

The UK share I’d stay away from

Cineworld (LSE: CINE) is certainly cheap. This is shown by a market cap of under £1bn, despite it being the second largest cinema chain in the world. Even so, cheap valuations don’t mean value and I think Cineworld is a good example of this. In fact, while I praised Diageo earlier for its use of debt, Cineworld’s debt-fuelled acquisitions have led to £6.1bn in borrowings, compared to shareholders’ equity of just £1.2bn. This represents a severe problem for a company that’s currently unprofitable.

As a result, I don’t think Warren Buffett would buy this troubled UK share. His sale of airlines in 2020 demonstrates his views on many troubled industries and Cineworld is no different. This is one I’m staying away from!

The post Investing like Warren Buffett: the UK shares I’d buy and one I’d avoid appeared first on The Twelfth Magpie.

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Stuart Blair owns shares in Diageo, Mondi and Sage Group. The Motley Fool UK has recommended Diageo and Sage 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.