With almost 10,000 screens across its 790 sites worldwide, Cineworld (LSE:CINE) is the second-largest cinema chain in the world. It’s the UK’s biggest. Size doesn’t always matter, though, as Cineworld shares have been rocky for a long time now.
Over the last few weeks, I’ve been weighing up whether I’m interested in investing in the company. Here’s what I decided.
I’m not buying Cineworld shares
In March of last year, I managed to attain Cineworld shares at market crash lows of around 35p. Soon after, I’d doubled my money.
A few months later, I took a loss of about 20% out of concerns that the company wouldn’t recover from its October re-closure. It’s safe to say that I was wrong (in certain ways, anyway). By now, my initial investment would’ve doubled again. No need to dwell on it, though, because Cineworld shares are tumbling once again.
Understandably, last year had a big impact on the cinema giant’s revenue. It ended up experiencing losses of £2.2bn. This is pretty severe for a company in an industry that was already far from thriving. It also resulted in almost £1bn more debt from that year alone. Cineworld now owes a total of around £6bn.
As Kirsteen Mackay explains, Cineworld shares have been heavily shorted since before the pandemic. This lack of confidence from investors who are willing to bet on Cineworld’s failure makes it a risky investment.
It also has the continued rise of online streaming to contend with. Things don’t look great for the cinema industry as a whole, let alone Cineworld.
Disney+ has proven to be a hit, with over 100m paying subscribers able to view blockbusters whenever they want. Its Premier Access service also allows its audience to pay to see new films. This stops them from heading to the cinema. Should this become the new normal, Cineworld shares would be in serious trouble.
The company also sparked controversy in October 2020 when many of its employees found out that they wouldn’t be returning to work via news headlines.
This actually hasn’t had much of a long-term impact, but any further mistreatment of its employees be disasterous. We all know what happened when Deliveroo debuted on the London Stock Exchange just after its employees protested about working conditions.
But it’s not all bad news
All of that said, Cineworld is finally opening its doors again. Films like Godzilla vs Kong have already proven successful in the US, and soon enough we’ll be seeing huge, delayed films like No Time To Die released.
If UK film fans realise they miss the big screen enough to say no to streaming, the group could generate healthy profits and begin to pay off its debts.
Cineworld also currently offers a dividend yield of nearly 7%. This is a relatively attractive figure for investors looking for passive income, and not too much of a red flag for those concerned that Cineworld as a company might be in trouble.
It’s possible that I’ll be eating my words like popcorn in 2022, but at the moment, I’ll be avoiding Cineworld shares like another Pirates Of The Caribbean sequel.