I enjoy going to the cinema to see the latest film release. If you also enjoy the big screen experience, then this may be an opportunity for you.
Cineworld (LSE:CINE) may be a young company, founded in 1995, but has risen to prominence and impressive scale. It is currently the second-largest cinema chain in the world, with approximately 9,500 screens across almost 800 sites. The group’s primary brands are Cineworld and Picturehouse (in the UK and Ireland), Regal (in the US), Cinema City (throughout Europe), and Yes Planet (in Israel).
Based on revenue, Cineworld became the UK’s largest cinema operator last year. Since the company derives 75% of its revenue from the huge US market, it is always wise to keep an eye on its activities across the pond.
There’s no place like home
Cineworld’s recent trading update in December was described as “below expectations.” The update showed a 10% drop in revenue compared to the same period previously. Perhaps a more telling piece of information was that box office sales took a big hit, with an almost 13% decrease. Another key nugget to take away is that there was an 8% drop in retail sales.
I can’t help but think this is because people prefer to stay home and have access to cheaper, more convenient methods of watching the latest film. The ever-growing popularity of streaming services has to be a concern for a company that relies on the more traditional movie-watching experience.
It appears that Cineworld plans to combat this trend by relying on a better quality product being available only in cinemas, rather than the straight-to-streaming options that are happening for more and more blockbusters.
In December it announced a $2.1bn (£1.6bn) takeover of Canada’s Cineplex. The deal will add 165 cinemas and 1,695 screens and make Cineworld the largest cinema operator in North America.
I’m going to make you an offer you can’t refuse
Looking at the numbers I’m not very concerned by the 15% drop in share price in the previous month. In fact, I would view it as an opportunity to pick up shares.
Profit figures for the previous four years have increased year on year, which is always a positive sign. The dividend per share had also been increasing year on year, except for a slight dip last year but that does not concern me too much.
The current price-to-earnings ratio, which sits at just under 10, is not the most progressive, but the dividend yield is just over 7%, which is encouraging.
Let’s not beat around the bush – there are potential short-term drawbacks to this stock. However, I think it could be a long-term growth option for your portfolio. I would not be put off by short-term issues, and focus more on the company’s acquisitions, market share, and propensity to continue growing.