The Cineworld Group (LSE: CINE) share price continues to struggle for momentum. Not even mid-March’s full-year results — which showed a strong rebound in takings for the cinema operator — have helped it claw back ground.
Cineworld’s share price is currently worth a third of what it was a year ago, at 33p. Is now the time for me to buy this recovering penny stock?
Is Cineworld’s share price a brilliant bargain?
First off it’s worth recapping Cineworld’s full-year results of last week. The company reported then that admissions jumped 75.2% in 2022 to 95.3m as movie lovers flocked back following Covid-19 shutdowns.
Rebounding ticket sales and robust demand for its pricey sweets and sugary drinks helped revenues jump 112% year-on-year to $1.8bn. So Cineworld’s pre-tax losses narrowed to $708.3m from $3bn in 2021.
Most importantly Cineworld painted an upbeat picture looking ahead. It said that it expected a “gradual recovery of admissions and demand since re-opening” to continue. It added that “a strong and full film slate” should help it to trade strongly from March onwards.
The march of the blockbusters
The importance of a packed schedule of sequels, reboots, and spin-offs to Cineworld cannot be underestimated. Hollywood’s conveyor belt of popular franchises helped the global box office hit record highs of $42.3bn in 2019.
I bought Cineworld shares several years back because of the eternal pull of these adrenalin-filled crowd pullers. That pre-pandemic high was driven by titles like Avengers: Endgame and The Lion King.
The good news for Cineworld (and potentially its share price is that 2022) promises to be another packed year of blockbusters. Fresh instalments from the Jurassic Park, Top Gun, and Fantastic Beasts canons are scheduled for the next few months alone.
Can the party continue?
Is now the time for me to buy back into Cineworld after selling my shares in 2020, then? I’m afraid I’m yet to be convinced to pile back into what used to be one of my favourite UK share holdings.
Cineworld’s bounced back strongly following Covid-19 lockdowns. But investors need to remember that the pandemic isn’t over yet and a spike in infections could prompt more box-office-battering restrictions.
Cineworld could also suffer as the cost of living crisis worsens. The Film Distributors’ Association says that “financial concerns were the primary barrier for those yet to return to cinema” during 2021. These worries are likely to be heightening as inflation rockets.
The verdict
As a long-term investor I might be prepared to look past these immediate dangers. But in the case of Cineworld I have a different opinion.
This is because Cineworld has masses of debt that it could struggle to repay if revenues dry up. This rose more than $560m year-on-year to stand at $8.9bn as of December 2021. It threatens to surge even further if it fails in its appeal to overturn a court ruling on its abandoned takeover of Cineplex.
Trading at Cineworld has been better than many had been forecasting. However, this penny stock is still far too risky for my liking.