The Cineworld share price has surged 15% today. What’s going on?

Paul Summers takes a closer look at why the Cineworld (LON:CINE) share price is flying. Could the battered cinema chain be worth buying?

| 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.

sdf

The Cineworld share price rocketed another 15% earlier this morning, complementing gains made earlier in the week. All told, the company’s valuation has increased a stonking 28% since Monday morning!

What’s behind this huge rise and should I consider finally taking a position in a company that I’ve been wary of for so long?

The Cineworld share price: what gives?

One might assume that recent gains are the result of some monumental news regarding the company’s financial position or some chink of light as far as reopening its screens is concerned. Not as far as I can see.

Should you invest £1,000 in ASOS right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if ASOS made the list?

See the 6 stocks

The only update to come out of the company in the last few days relates to the approval of an incentive plan for CEO Moshe Greidinger and deputy CEO Israel Greidinger. As a result, both are now in line to receive at least £33m each in shares if they are able to return the Cineworld share price back to 190p within three years. For context, the shares are changing hands for 83p each as I type. 

I suppose another potential contributor to Cineworld’s share price rise over the past few days might be a ‘short squeeze’. This happens when those betting against the company rush to close their positions. This creates further upward pressure on the share price and results in an even bigger jump.

Reasons to be cheerful?

Could the share price target be hit? It’s not beyond the realms of possibility given that people may want to let off cinematic steam and flood screens once restrictions are lifted. One could also argue that a trip to the cinema is a relatively cheap form of entertainment and more likely to be popular in troubled economic times. Seen from this perspective, Cineworld could arguably be a better recovery play than, say, a struggling airline or holiday firm. 

On top of this, an end to restrictions should allow frustrated studios to greenlight many more productions, generating excitement among filmgoers. Three years is surely a decent amount of time for Hollywood to get back to normal? 

Then again…

Having said this, it’s still hard for me to overlook the challenges that Cineworld faces.

Right now, none of the company’s cinemas in the UK and the US are open, and huge job losses seem very likely in the next few months. The company is rolling in debt and may need further cash injections if films keep being delayed.

Whether the recent jump in the share price is the result of a short squeeze or not, Cineworld also remains one of the most hated shares on the London Stock Exchange according to shorttracker.co.uk. 

Aside from all this, I have to question whether I want to own stock in a company that needs to provide an exceptionally large ‘carrot’ to management for merely performing its duty. Surely crises are when executives need to earn their already-sizeable salaries? Further incentives should not be necessary, I feel. 

Bottom line

The big gains in the Cineworld share price over recent days will excite ‘traders’. As an investor, however, I’m steering clear. For me, there are simply less risky ways of trying to make money in the stock market. The most rational strategy, at least in my opinion, is to stick to buying quality UK stocks at reasonable prices and then do nothing

Should you invest £1,000 in ASOS right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if ASOS made the list?

See the 6 stocks

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.

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.

More on Investing Articles

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

2 stocks to consider buying in July for the long-term travel boom

There are numerous ways to play the long-term growth in travel demand. Our writer highlights two stocks to consider for…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

Warren Buffett’s 4 goals contain lessons for all investors! Here they are

Billionaire investor Warren Buffett once set out his four ongoing goals. Our writer reckons they are instructive for investors at…

Read more »

Portrait Of Senior Couple Climbing Hill On Hike Through Countryside In Lake District UK Together
Investing Articles

Rome wasn’t built in a day, and neither is £51k a year in passive income!

Our writer highlights a FTSE 100 stock that he thinks could beat the market long term and help target a…

Read more »

Happy woman commuting on a train and checking her mobile phone while using headphones
Investing Articles

This FTSE 100 outperformer keeps going from strength to strength

3i shares might be up 670% over the last 10 years, but Stephen Wright thinks there’s more to come from…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

Scottish Mortgage is a passive income superstar! Who knew?

Harvey Jones gets the surprise of his investment life when he discovers just how much passive income this top FTSE…

Read more »

Night Takeoff Of The American Space Shuttle
Investing Articles

This SpaceX-linked AIM growth stock is up 100% this year! Time to buy?

This UK growth stock has doubled in 2024 thanks in part to a lucrative US deal. With strong margins and…

Read more »

Rolls-Royce's Pearl 10X engine series
Investing Articles

The Rolls-Royce share price hit yet another record high last week! Still time to buy?

The Rolls-Royce share price has soared 2,287% in under five years and in recent days hit a new all-time high.…

Read more »

Two business people sitting at cafe working on new project using laptop. Young businesswoman taking notes and businessman working on laptop computer.
Investing Articles

£10,000 invested in Palantir stock 2 years ago is now worth…

I’m under no illusion that some long-term investors in Palantir stock will be considering an early retirement. The stock has…

Read more »