UK share prices have been on a bumpy ride over the past 12 months. And the Cineworld Group (LSE: CINE) share price has been on a particularly wild ride. Having slumped to record troughs below 25p per share last March, the leisure giant has rebounded strongly. It was last trading four times more expensively than it was during those troughs above 100p.
Despite this recovery, though, the Cineworld share price is still off the 200p it traded at at the start of 2020. Does the cinema chain still offer plenty of upside for long-term UK share investors then?
Looking on the bright side
There are several reasons to be optimistic about Cineworld’s share price. These include:
#1: A successful vaccine rollout. Cineworld’s share price began to take off last autumn when positive testing news surrounding Covid-19 vaccines emerged. This supercharged hopes that the chain would be able to reopen its theatres to the public in early-to-mid 2021. Optimism has continued to grow thanks to successful vaccination programmes in Cineworld’s core US and UK marketplaces. Half-glass-full investors believe cinema-goers will flock back to the box office in droves after being released from lockdowns.
#2: US stimulus package to boost bookings. This UK share has only recently entered the US market. But through its Regal theatres, the group generates the lion’s share of profits from its Stateside territory (around 75% by my calculations). The US economy is recovering strongly from the Covid-19 crisis, which naturally translates into better spending power for the American public. And the amount US citizens have to spend on leisure trips and other comforts is likely to receive an extra boost following the passing of a $1.9trn stimulus package earlier this week.
Dangers to Cineworld’s share price
That being said, there are several reasons I think the Cineworld share price could struggle to get back to its pre-pandemic heights, such as:
#1: The threat of the streaming giants. The emergence of video-on-demand services from the likes of Amazon and Netflix has been steadily chipping away at the cinema operators over the past decade. It’s possible that Covid-19 has significantly changed the way we watch movies for good. It might be harder to pull people off their couches than some imagine.
#2: Changes to the studio model. Recent shifts in the way studios release movies — changes which allow new films to be released on streaming platforms shortly after or even at the same time as in theatres — seriously undermine one of Cineworld’s biggest selling points: they are no longer the only place (piracy aside) to watch freshly-released movies.
The verdict
Successful vaccine rollouts mean there is clearly light at the end of the tunnel for UK leisure shares like Cineworld. But big threats still remain for the company to tackle. In the short term I’m particularly concerned about how full its cinemas will be packed out when its doors are flung open again. Don’t forget that the business still has colossal amounts of debt to pay down (the interest payments alone are eye-watering). I’d much rather buy other British stocks today.