Cinema chain Cineworld (LSE: CINE) has seen a curious share price trend recently. Over the past year, its share price is up 13.4%. This is hardly among the biggest increases, but it is still somewhat respectable. I cannot say the same about its share price change over the past six months, however. It has fallen by a significant 41%, crashing into penny stock territory. As I write, it is trading at around 66p.
What is going on here?
Coronavirus haunts the Cineworld stock
To sum up in two words, continued uncertainty. The FTSE 250 cinema chain has been among stocks worst hit by the pandemic. Even though it appears that the worst of Covid-19 is now behind us, there is no guarantee that clear progress will follow. The Centre for Disease Control and Prevention (CDC) predicts that in the month, coronavirus deaths in the US will rise to levels last seen in March this year, when the vaccines were still taking effect.
The US is the largest market for movies, if we ignore the atypical trends for last year, so uncertainty there could be particularly damaging for cinemas. This is already becoming evident. Release dates for potential money spinners like the Tom Cruise starring Top Gun sequel and Mission Impossible 7, have been pushed to next year because of the pandemic risk.
I reckon that the relatively limited progress in handling the pandemic and its impact on movie releases is keeping investors at arm’s length from highly sensitive stocks like Cineworld. So even though much euphoria surrounded them when vaccines first came into the picture, it died down in the following few months. As a result, much of the share price progress seen during last November’s share price rally has been wiped out over the past half year.
Why I’m still optimistic
Still, I think there is room for optimism here. Initial signs of a pick up in audience numbers are evident. Spending per viewer has also risen a fair bit. And there is still a spate of potential blockbusters ready for release including a James Bond, yet another Spider Man and even the fourth in the Matrix series.
Based on these factors, I am optimistic about the Cineworld stock. Even if it takes a while before swinging back into profits, its revenues should start growing. This can also give it a better chance to start paying off its huge debts.
My takeaway
And that in itself can be a positive for its share price. In fact, I think the chance of this happening is far higher than a big potential setback from coronavirus in the coming months. The risk exists, to be sure, but so do solutions.
I think that at its present dirt-cheap levels, Cineworld is a penny stock I shouldn’t miss. And that is why I have bought it already.