Earlier in 2021, the Cineworld (LSE: CINE) story looked like it was heading towards a happy ending. Lockdown measures were easing, and the company’s liquidity seemed enough to get it through. By March, the Cineworld share price had gained 90% from the start of the year.
But then things started to go wrong again, and the shares headed south. Since that March peak, we’ve seen a fall of 47%. Those big early gains have evaporated. Over the past two years, Cineworld shareholders are sitting on a 70% loss. And even prior to that, the price had already been weakening.
So what’s happening, what’s likely to happen next, and what should I do as an investor? Firstly, what might happen in one particular month won’t necessarily mean anything at all in the long term.
But I do wonder if maybe we’ve seen the Cineworld share price bottoming out. If we do see any improvement throughout September, I can’t help feeling it could be the start of something sustainable.
Changing investor sentiment
Why do I say that? I’m becoming increasingly convinced we’re seeing a change in the market’s approach to stocks affected by the pandemic. Before the crash, nothing was keeping investors away from long-term fundamental valuation. Then things turned upside down, and the focus shifted to what’s happening on a daily basis. Who’s likely to go bust? Which companies will get a boost? What’s the latest on vaccine developments?
Now we’re increasingly heading out of the crisis, I reckon heads are starting to cool again. And folks are going back to scrutinising those profit and loss accounts, and balance sheets, once more.
It reminds me of what economist and investor Benjamin Graham said, that in the short run, the market is like a voting machine, but in the long run, it’s is like a weighing machine. The voting based on all sorts of short-term events is fading, and the weighing machine is kicking back in again.
Cineworld share price valuation
How does Cineworld weigh up now then? First half results, for the period ending 30 June, were understandably bad. The closures of the early part of the year led to an adjusted EBITDA loss of $21.1m. I don’t think that’s actually too bad. But a cash burn rate of $45m per month is more troubling. As is a net borrowing figure that now exceeds $4.6bn.
Still, cash of $436m together with a fresh $200m loan raised in July will hopefully see the company through without a need for any major new funding. Cinemas are all fully open, though it might still take time for audiences to get back to pre-pandemic levels. So what’s my strategy now?
I’m going to watch how the share price goes in September and beyond. And I’ll wait until I think the weighing machine is back in proper balance before I consider buying. I suspect that won’t be until we see full-year results, at least.