After recent results, should I now buy more Cineworld shares?

Key points

• Between the 2020 and 2021 calendar years, revenue increased from $850m to $1.8bn
• For the same period, pre-tax losses fell significantly, from $3bn to $708m
• There’s an ongoing litigation battle with Canadian rival Cineplex 

It’s no secret that Cineworld (LSE:CINE) shares took a battering during the Covid-19 pandemic. With cinemas closed for long periods, revenue fell dramatically. When I first bought shares in the company, I thought that a pandemic recovery would eventually lead to an increase in the share price. Theoretically, this made sense. However, there have been a few bumps in the road. With recent annual results, should I now be adding to my original position? Let’s take a closer look.  

Recent results and Cineworld shares

The hotly anticipated Cineworld results, for the 12 months to 31 December 2021, were released on 17 March. As a current shareholder, I was very excited to see how the company had performed over 2021. I also had some concerns about the business going forward.

The big news was that revenue more than doubled. During 2020, when many cinemas were shut, revenue slipped to just $850m. It was therefore pleasing to see this grow to $1.8bn for 2021.

Furthermore, the massive $3bn pre-tax loss of 2020 had shrunk to $708m. These narrowing losses make me strongly suspect that the business is through the worst of the pandemic. Nonetheless, Covid-19 has taken its toll, as net debt once again increased, to $4.8bn from $4.3bn in 2020.

I was disappointed, but not particularly surprised, that net debt rose. Overall, however, the increasing revenue and narrowing losses give me a lot of confidence for the future. They’re the first vital indicators that this business could turn things around.

What about the situation going forward?

An interesting statistic, reported by CEO Mooky Greidinger and covered by my Motley Fool colleague Roland Head, is that customers are spending more in cinemas. In fact, cinema-goers are spending on average 29% more when they go to watch a film compared to 2019.

When I add this statistic to the attractive slate of films to be released soon, I think this can only be good news for the firm going forward. Indeed, it has future blockbusters like Jurassic World: Dominion, Avatar 2, and Mission: Impossible 7 to look forward to.

I have also previously written about how I think P/E ratios suggest that Cineworld shares are currently cheap. When we add this to the exciting mix of films scheduled for release, I think there’s strong upside potential for this business.

But a major concern, aside from increasing debt, is the ongoing litigation with Canadian rival Cineplex. All Greidinger really said about this in the presentation was that it was at the appeals stage and that the company felt it had a strong legal basis for reversing the judgement. It is still worrying though, given that a failed appeal would force Cineworld to pay over £700m in damages. This would be an unsecured debt.

Overall, I think that Cineworld could ultimately weather the storm. Results are encouraging and people are flocking back to the cinema. The debt and litigation, however, mean I will hold off from adding to my position until the situation becomes clearer.