The Cineworld Group (LSE: CINE) share price has risen a whopping 62% during the past 12 months. Compare that with the 14% increase which the FTSE 100 has enjoyed in that time.
Investors feared the worst for the cinema operators last year as Covid-19 forced them to shutter their doors en masse. The Cineworld share price suffered particularly badly as its colossal debt pile posed a risk to the company’s very survival. However, prices rose strongly from the autumn on news of successful vaccination developments and the prospect that movie theatres could fling their doors open again before too long.
Looking on the bright side
However, rising Covid-19 cases in Britain means Cineworld’s share price has trended lower again in recent weeks. Does this present a decent dip-buying opportunity for long-term UK share investors? Well there are people who believe the post-coronavirus outlook for the cinema industry remains encouraging.
Analysts at Deloitte certainly believe there’ll likely still be a role for cinema in the post-pandemic landscape. They say movie theatres could experience “a strong rebound” when people feel safe to return, and that “studios will continue to deliver big theatrical experiences.”
They went on to add that “as more streaming services vie for compelling original content, many of the showrunners, screenwriters and actors creating it are still drawn to the prestige of cinema.” Deloitte added though, that operators like Cineworld will have to adapt and demonstrate value versus the at-home market to maintain its longevity.
Why I wouldn’t buy Cineworld shares
I share Deloitte’s belief that cinema will survive the Covid-19 crisis. But I’m doubtful as to whether the global box office will return to record levels seen before the pandemic, given the fierce competition posed by US streaming giants Netflix, Disney and Amazon. This makes me question whether Cineworld can deliver the sort of returns it had in days gone by.
The experts at Grand View Research believe the video streaming market will continue to enjoy explosive growth. They predict the sector will be worth a staggering $224bn by 2028, up from $59.7bn today. They think that technological improvements (like increased use of artificial intelligence in production), along with the rapid growth of streaming on mobile phones, will drive growth. This will give the likes of Cineworld plenty to think about.
Still, the long-term future of the Cineworld share price isn’t my main concern right now. Right now, I’m more worried about the company’s running out of road in the next year or so, given its almighty debt pile. It wasn’t that long ago the UK leisure share was warning it could go out of business. And since then, the amount of debt on its books has risen.
If the coronavirus crisis spirals out of control again, Cineworld could well collapse. I’d much rather buy other UK and US shares right now.