Cineworld share price crashes 40%: would I buy or sell?

Cinemas are struggling amid lockdowns and reduced confidence. After the Cineworld share price crashed by 40%, what should investors do now?

| 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 Group (LSE: CINE) share price has crashed by over 40%, at the time of writing late on Monday. Investors were spooked after the cinema chain announced that it will be temporarily suspending operations across the US and UK.

Covid-19 has provided a difficult backdrop for the hospitality and leisure industry this year. Cinemas in particular are struggling as movie studios remain reluctant to release their pipeline of films. Major markets remain closed and those that are open have struggled to welcome viewers back to cinemas.

Cineworld’s announcement comes just days after the release of the latest James Bond movie was postponed again, until next April. No Time to Die was originally due to be released in April this year but nationwide shutdowns postponed its debut date to November.

Should you invest £1,000 in Cineworld 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 Cineworld made the list?

See the 6 stocks

The latest postponement highlights the difficulty that cinemas are facing. Without new movies, Cineworld and other cinemas will struggle to attract customers. Without customers, movie studios will remain reluctant to release their latest offerings.

Cineworld may need to wait until movie studios can bring back their pipeline of films to the big screen. Also, the picture may not improve until authorities in Cineworld’s key markets provide updated concrete guidance for cinemas and customers.

Cineworld share price: set to fall even without Covid-19?

The company as an investment has struggled in recent years. The Cineworld share price reached an all-time high in 2017, and has failed to climb higher ever since. One of the biggest reasons for this lacklustre performance seems to be the mountain of debt Cineworld has accrued.

Between 2017 and 2019, although revenues tripled, net debt ballooned 20-fold to almost $8bn. The increase in debt was to enable several acquisitions, aiming to drive future growth.    

Without Covid-19, the group could potentially have increased revenues enough to be able to reduce this level of debt. However, Covid-related shutdowns earlier this year brought revenues to a standstill. Despite attempting to reopen over the summer and lure customers through its doors, it just has not been enough.

So what now for the Cineworld share price?

Given that revenues have dried up, I think there is a good chance that Cineworld may need to refinance its debt. It said in a statement: Cineworld is assessing several sources of additional liquidity and all liquidity raising options are being considered”.

Equity shareholders may have their holdings diluted if new equity is required. Either way, it doesn’t look great for shareholders, in my opinion.

After a one-day decline of nearly 40%, a short-term bounce is possible. Any sign of a vaccine or any possibility that public confidence is returning could support the share price in the short term. However, both currently seem a long way off. With no clear visibility of revenues and a burgeoning debt pile, I would steer clear. If I already held the shares, I would sell them, despite taking a loss. There are several other less risky options in the hospitality and leisure sector that I’d consider instead.


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.

Harshil Patel 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

UK financial background: share prices and stock graph overlaid on an image of the Union Jack
Investing Articles

2 FTSE shares taking on US tech giants — and quietly gaining ground

US tech stocks dominate headlines, but two UK tech firms are proving that FTSE shares can deliver strong growth, reliable…

Read more »

Mother At Home Getting Son Wearing Uniform Ready For First Day Of School
Investing Articles

Worried about the future? Here’s how to try and give your kid a £28,000 second income

The future is an unknown, and that scares many of us. Dr James Fox explains how we can try and…

Read more »

Array of piggy banks in saturated colours on high colour contrast background
Growth Shares

Here’s what analysts expect for the Tesco share price in the coming year

Jon Smith runs through the outlook for the Tesco share price using both his own opinion (and research) and that…

Read more »

Night Takeoff Of The American Space Shuttle
Investing Articles

This ex-penny stock jumped 16% today! Should I buy it for my ISA?

Our writer revisits a small-cap UK stock that he passed up on last year for his Stocks and Shares ISA.…

Read more »

Two female adult friends walking through the city streets at Christmas. They are talking and smiling as they do some Christmas shopping.
Investing Articles

How much do you need in an ISA to target a £2,500 monthly income?

Harvey Jones thinks FTSE 100 shares are a brilliant way to generate a long-term second income stream, and names a…

Read more »

Businessman hand stacking money coins with virtual percentage icons
Investing Articles

These ‘boring’ FTSE 100 dividend stocks just hit 52-week highs!

Who needs to be part of the AI-frenzy when certain dividend stocks are making an absolute packet for more conservative…

Read more »

Businesswoman calculating finances in an office
Investing Articles

This FTSE 100 stock is forecast to beat Rolls-Royce in the coming year — and it’s only £1!

Rolls-Royce has been the FTSE 100 star of 2025, but analysts think this £1 homebuilder could deliver over three times…

Read more »

Mature black woman at home texting on her cell phone while sitting on the couch
Growth Shares

Down 86% over five years, this FTSE stock could be nearing the bottom

Jon Smith points out a FTSE share that has been beaten up in recent years but could start to show…

Read more »