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.

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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 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.

True, the stock performed well for the majority of last year, rising almost 50% from late January to early October. The last few months of 2018 were distinctly less kind, however, with the £3.8bn cap giving up a not-insignificant proportion of these gains. 

The stock is falling again today, despite the company reporting decent trading over the last financial year. 

Does an already-cheap looking valuation make this a golden opportunity for investors to buy a slice of a business in a seemingly resilient industry?

“On track”

With 308m cinema-goers passing through its doors in 2018 (a rise of 2.6%), Cineworld grew revenue by 7.2%. 

According to the company, this performance was due to a combination of strong film releases, the ongoing refurbishment of its sites and the rollout of its premium formats. 

Performance in the US was particularly strong where films such as Black Panther and Incredibles 2 succeeded in drawing families away (at least temporarily) from streaming services such as Netflix.

Growth in the UK and Ireland was less impressive (3%) with the company facing tough comparisons from the previous year — a performance matched at Cineworld’s operations in Eastern Europe and Israel (+3.1%). 

Some 13 new sites were added over 2018, bringing its total estate to 790 cinemas by the end of the year. It also invested in technology such as IMAX Laser projectors and 4DX screens. 

According to management, the company remains “on track” to meet expectations for the current year and the integration of Regal is “progressing well“.

These days you can pick up a slice of Cineworld for 11x forecast earnings for the new financial year. That seems cheap considering the film slate for 2019 includes likely blockbusters such as Toy Story 4 and Star Wars: Episode IX. Based on an estimated dividend per share of 13.4p, the stock will also yield an attractive 5.1% at today’s price.

That said, I think the investment case hinges on how quickly it is able to pay down the debt resulting from the takeover of Regal last March. With further hikes to US interest rates still possible, this is something that at least warrants consideration from prospective owners before reaching for the ‘buy’ button.   

Riskier alternative?

If you’re put off by the amount of debt carried by Cineworld, small-cap growth play Everyman Media (LSE: EMAN) could be a suitable alternative. It reported a net cash position of £2.13m back in September.

The company, which operates 26 sites across the country, is attempting to redefine the cinema experience by offering customers plush sofas rather than standard seats and enhanced customer service (albeit reflected in the price of tickets).

However, there are reasons to be wary. Everyman’s stock is vastly more expensive. Based on an expected 31% growth in earnings per share, shares trade on a forward P/E of 55.  That’s frothy at the best of times, but even more so at a time when consumers are tightening the purse strings as a result of Brexit-related economic uncertainty.

It’s also worth mentioning that Everyman’s operating margins are considerably lower than those of Cineworld and the former returns nothing in the way of cash to shareholders. 

As such, I’d probably back the FTSE 250 stock as a safer bet right now. 

The post Have £3k to spend? I think this cheap FTSE 250 growth stock could be worth the risk appeared first on The Twelfth Magpie.

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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.

While selling industrial filters is far from what most investors imagine when they hear the phrase ‘growth stock’, the tremendous record of Porvair (LSE: PRV) in recent years has made this relatively boring but dependable business one of the best growth stocks money can buy.

Since 2012 the company’s stock price is up over 250%, with good reason as its very capable management team has posted 9% revenue CAGR and 15% EPS CAGR over the period. Its key to success is designing and manufacturing patent-protected filtration systems for everything from aeroplanes to nuclear containment facilities and the casting of molten metals such as aluminium and iron.

One of the most attractive bits of the business is that it doesn’t just benefit when it initially designs and sells these systems, but in fact brings in steady recurring revenue over many years due to regulatory mandates or filters wearing down and needing replacement. And since these filters are critical to keeping very, very expensive machinery in tip top shape, customers aren’t going to skimp when it comes to replacing them. This gives Porvair impressive pricing power that led to operating margins of 9.3% in the half year to May.

Looking ahead, the company still has plenty of room to grow despite its stellar record over the past half decade. It estimates its main markets will grow at around 3%-5% over the medium term and it believes it can continue growing ahead of the market at large through acquisitions and organic growth.

Over the past five years, the company has invested £33m in expanding into new countries and markets through factory expansion and acquisitions and with £4m of net cash at period-end, there’s plenty of room for these investments to continue. With all this upside, Porvair’s shares aren’t cheap at 25 times forward earnings, but investors looking for dependable growth over the long term would be well-served by taking a closer look at the company.

A more mainstream option

A riskier long-term option I have my eye on is cinema operator Everyman Media (LSE: EMAN). The company currently runs 21 cinemas across the UK that offer both independent critic-pleasers and Hollywood blockbusters while also placing an emphasis on high-quality food and beverage options.

In the half year to June, new screens and food sales led to a 55% year-on-year (y/y) rise in revenue to £18.8m, while improved operational gearing led to adjusted EBITDA more than doubling to £3m. The company has already exchanged contracts for a further nine venues to be opened over the next two years, so growth prospects over the medium term look quite appealing.

However, investors shouldn’t get too ahead of themselves as the business is only now transitioning to profitability. Operating profits in H1 were £0.8m and the business is still relying on debt to finance expansion into new markets. On the bright side, pre-financing net cash outflows during the period fell from £7.4m to £2.1m y/y and a new £20m credit line should provide sufficient funding for medium-term growth opportunities.

While its shares are priced at 44 times forward earnings, this isn’t an entirely ridiculous valuation for such a fast-growing business. And with just under 2% market share there is plenty of room for Everyman Media to continue expanding for a long time yet.

The post 2 top growth stocks for long-term investors appeared first on The Twelfth Magpie.

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Ian Pierce has no position in any of the shares mentioned. The Motley Fool UK owns shares of Porvair. 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.

High-growth potential

Reporting on Friday was international business-to-business media company, Ascential (LSE: ASCL). Its update was exceptionally brief, and stated that the company is performing in line with expectations ahead of the end of the first half of its financial year. While short, the update helped to push the company’s share price 0.5% higher on the day, which takes its capital growth to 65% since the start of the year.

Part of the reason for the company’s strong share price returns in 2017 has been its improving outlook. Ascential is expected to record a rise in its bottom line of 11% in the current year, followed by further growth of 13% next year. This is almost twice the forecast growth rate of the wider index, and could lead to even further capital gains. That’s especially the case since the stock trades on a price-to-earnings growth (PEG) ratio of only 1.4, which suggests it offers a relatively wide margin of safety.

In addition, the company is forecast to increase its dividend payments by 50% over the next two financial years. This may put it on a yield of only 2%, but signals that it could become a more popular income share in future. With shareholder payouts due to be covered 2.8 times by profit even after its forecast rise in dividends, it could become a strong income option.

Uncertain outlook

The future for cinema chain Everyman (LSE: EMAN) is highly uncertain at the present time. The UK’s economic outlook is now less stable than prior to the general election, which could mean the company’s sales suffer in the short run. A weaker pound has helped to push inflation higher, which means it now beats wage growth. This will almost inevitably put pressure on consumer spending, with the result likely to be less spending on discretionary items such as trips to the cinema.

Despite this, Everyman could be worth buying right now. Its uncertain outlook appears to have been factored-into its valuation, with the company’s shares trading on a price-to-earnings growth (PEG) ratio of just 0.5 at the present time. This suggests that it offers a wide margin of safety, which could mean downside is limited and upside potential is relatively high.

Although Everyman may prove to be a relatively volatile stock in the short run, for long-term investors it seems to offer high growth potential at a reasonable price. As such, it could be worth buying.

The post 2 stunning value stocks I’d buy right now appeared first on The Twelfth Magpie.

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• The £15bn defence splurge that could send UK shares soaring in July
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Peter Stephens has no position in any 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.

Profits down, dividend up

Today’s full-year results show underlying pre-tax profit down a shade more than 11%, and underlying earnings per share contracting by 5%. That looks grim, but the directors expressed their confidence in the outlook for Clarkson by hiking the dividend by 5%.

Chief executive Andi Case reckons that challenging shipping markets have not stopped the firm being cash generative and profitable and he points to indicators suggesting that shipping and offshore markets are beginning to ‘recalibrate’ as reasons to be cheerful about the outlook.

Although there must be an element of cyclicality in the firm’s business, as its fortunes are tied to the ups and downs of the shipping market, Clarkson declares that it has delivered fourteen unbroken years of dividend increases.

At a share price near 2,562p, the forward price-to-earnings (P/E) ratio for 2018 sits around 19 and the forward dividend yield is just below 2.8%. City analysts following the firm expect forward earnings to cover the payout just 0.8 times. The valuation is too rich for me and I think there are better potential investments to get excited about, so I won’t be buying shares in Clarkson.

Growing fast

Premium cinema chain operator Everyman Media Group (LSE: EMAN) trades on the FTSE AIM market. Today’s full-year results show a surge in revenue of 45% and the firm swung back into a profit of £61k after losing £556k during 2015. However, the profit is small compared to the £29.5m Everyman collected in revenue, and borrowings run at just over £3m with a new £20m borrowing facility announced today to fund further expansion.

The directors aim to demonstrate the firm’s earning potential by reference to adjusted operating profit before depreciation, amortisation, pre-opening expenses, exceptional items and share-based payments of £3.9m, which compares to the £1.7m achieved during 2015. 

Fragile finances?

I’d describe such financials as fragile, but the firm is growing and profits often lag revenue growth in such circumstances. Yet the cinema industry strikes me as cyclical, because cinema tickets are one of the first expenses consumers can ditch in any economic downturn that squeezes incomes.

Right now, Everyman operates 20 venues, up from 16 at the beginning of 2016, which gives some idea of the growth potential. At today’s share price around 114p, the forward P/E rating runs at 36 or so for 2017 and there is no dividend, which is common for firms in an early stage of growth.

There’s no doubt that Everyman’s approach to the sector appeals to customers and the firm is set on a growth trajectory. However, I’m too concerned about the capital intensity and cyclicality of the cinema business to become involved by owning some of the firm’s shares.

The post Should I buy Clarkson plc, Everyman Media Group plc or both after FY results? appeared first on The Twelfth Magpie.

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• The £15bn defence splurge that could send UK shares soaring in July
• Up 446% in 12 months! What’s next for the Ceres Power share price?
• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

Kevin Godbold has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Clearly, Rolls-Royce is at the beginning of a fresh strategy under a relatively new management team. Although past performance has been poor and Rolls-Royce is expected to report a fall in earnings of 58% in the current year, it remains a high quality company with sound finances and a bright future. In fact, earnings growth is expected as soon as next year and with Rolls-Royce trading on a price-to-earnings growth (PEG) ratio of just 0.7, there’s clear upside potential on offer.

Furthermore, Rolls-Royce remains a very realistic bid opportunity – especially since sterling has weakened. Therefore, buying it right now could be a very sound move, with 30% gains on the horizon.

Sterling boost

Also reporting today was plastic products company RPC (LSE: RPC). It continues to deliver strong financial performance, with sales and profit up on the same quarter of last year and operating profit ahead of management’s expectations. With RPC generating around 75% of its revenue from outside of the UK, weaker sterling is likely to cause a boost in earnings in the short run. As such, it would be of little surprise for RPC’s share price to move higher after its 2% gain so far today.

Looking ahead, RPC is forecast to record a rise in its bottom line of 25% this year, followed by further growth of 12% next year. This puts it on a forward price-to-earnings (P/E) ratio of just 13.3, which indicates that it offers excellent value for money and also that 30% gains are on the cards.

And with RPC having a dividend covered 2.7 times by profit, it seems likely to raise shareholder payouts at a rapid rate over the medium-to-long term. This indicates that while it may not be an income star right now thanks to its yield being just 2.5%, it has the potential to become one in future.

Big screen growth

Meanwhile, shares in Everyman Media Group (LSE: EMAN) have fallen by around 3% today after it released a trading statement in line with expectations. Looking ahead, it expects a significant increase in financial performance year-on-year due to new sites coming on-stream.

The cinema chain has exchanged contracts on venues in Horsham, Durham and Wokingham, with a one-screen temporary venue set to open at King’s Cross in London prior to its full opening in late 2017. In addition, Everyman has recently opened sites in Bristol, Esher, Gerrards Cross and Barnet, all of which are trading well.

Everyman is expected to return to profitability this year and then increase earnings by 220% next year. This puts it on a PEG ratio of only 0.1, which indicates that now could be a good time to buy it. Certainly, the effects of Brexit on the UK cinema industry could be significant due to a trip to the cinema being a consumer discretionary item. But with a wide margin of safety, Everyman seems to be a worthy purchase for the long haul, with 30% upside relatively likely.

The post Will RPC Group plc, Rolls-Royce Holding plc and Everyman Media Group plc rise by 30%+ after today’s news? appeared first on The Twelfth Magpie.

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Peter Stephens has no position in any shares mentioned. The Motley Fool UK has recommended RPC Group. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.