Cineworld (LSE: CINE) has tanked in 2022. We did see the makings of a post-pandemic recovery last year. But since a peak in March 2021, the Cineworld share price has crashed by a whopping 85%.
That dramatic reversal of fortune is down to more than just the number of bums on cinema seats.
Business-wise, Cineworld has actually been doing relatively well as it’s started to rebuild after the pandemic.
Shrinking losses
In 2021, the cinema operator reported a pre-tax loss of $708m. And I think that’s good, do I? Well, compared to the enormous $3bn loss recorded in the Covid year of 2020, it’s really quite a lot better.
In 2022, we’ve seen social restrictions being ended. And people have finally started getting back to their normal lives. Well, as much as they can when we’re hit by rising inflation and global economic gloom, that is.
Still, the clouds hanging over the real world might make the escapism of the cinema a more attractive way to spend a few hours.
Top value?
Analysts expect Cineworld to report another loss in 2022. But they have a return to profits marked down for the following year. Forecasts suggest a 2023 price-to-earnings (P/E) ratio of only around 5.5. And 2024 estimates would drop that to a minuscule 1.5.
That could make the Cineworld share price top stock market value right now. If the forecasts prove accurate, that is. And if Cineworld survives long enough to achieve them. So what might cut its lifespan short?
Well, net debt at 31 December 2021 had reached $4.8bn. That’s approximately £4bn. And Cineworld’s market cap stands at just £236m. The company, right now, is effectively a huge pile of debt with a cinema chain on the side.
But even that might not be the biggest threat.
Damages judgment
It’s stuck in a legal battle with Canadian rival Cineplex. It’s all over an attempted takeover deal that went bad. As it stands, Cineworld has had damages of C$1.23bn awarded against it. That’s about £790m. Whatever currency we use, it’s a fair bit more cash than the firm has.
So with all this bad news, why don’t I just see it as a sell-and-run-away stock? After all, it was the most shorted stock on the UK market at the last count.
Well, the company is appealing the damages verdict. If it wins that, I think we could see the share price take a sharp step upwards. If that happens, short sellers could be squeezed out. And their resulting need to buy shares to close their positions could send the price up even further.
Quicker turnaround?
I suspect the City’s analysts are possibly a little too pessimistic. I reckon there’s a fair chance that Cineworld could actually return to profit this year. And that could give the share price another leg up.
There are many big ifs here. But I really do think 2022 could turn out to be a make-or-break year. Would I put the odds at 50-50? I really don’t know. But even if it should turn good, it’s still too big a gamble for me to buy.