Like many, the Cineworld (LSE: CINE) share price has struggled over the past few years. However, last week gave investors a glimpse of hope, as the stock rose over 10%. In fact, the Cineworld share price is up 11% year-to-date. For comparison, the FTSE All-Share Index is down 7% in the same period.
So, amid the global economic environment, should I be looking to buy Cineworld shares now? Let’s take a look.
Cineworld bull case
In uncertain times, consumers tend to reduce their spending. However, the current economic condition may actually benefit Cineworld. This is because, in times like these, consumers may avoid pricey nights out, with a cheaper alternative being a trip to the cinema. And as my colleague Rupert Hargreaves highlighted, this is a trend that has proven to play out in the past.
On top of this, the firm has just begun a large marketing push in an attempt to increase footfall. As part of this, Cineworld has reduced the price of its tickets to as little as £3 in some cases. Combine this with the large success seen from box office releases such as Spider-Man: No Way Home, and it’s clear to see the potential Cineworld has to thrive this year.
Cineworld share price risks
With that said, there are a few risks to consider with Cineworld.
The most pressing is the variety of options consumers now have today. Subscription services such as Netflix provide an even cheaper option than going to the cinema, and for a relatively low-price consumers can use it repeatedly. The increasing popularity of streaming services has largely attributed to the decline of cinemas in recent times. For Cineworld, they pose a serious threat.
Another issue with Cineworld is the large debt the firm has. As of September, the business had over an $8bn debt pile. And with its full-year results due this week (17 March), it is expected this debt will still be lingering on the firm’s balance sheet. This is an issue for Cineworld for a few reasons. Firstly, it will potentially stunt growth in the future. And, with rising interest rates, this debt will become more difficult to pay off.
To make issues worse, Cineworld lost a court dispute late last year regarding its abandoned takeover of Canadian rival Cineplex. After launching a failed counterclaim, the firm has been ordered to pay over $900m. This will only further its debt issues.
What I’m doing
So, while I think the Cineworld share price has potential, I won’t be buying any shares just yet. The headwinds the firm face are too difficult to ignore. And with talks of a new subvariant of Omicron surfacing, any future Covid restrictions would have a major impact on Cineworld. Its large debt also makes the business fragile. Instead, I intend to wait until Thursday to get a better measure of the firm’s current position.