Does Cineworld share price offer further growth after rising 50%?

Cineworld’s (LON: CINE) share price has risen 50% since the start of the year, with investors expecting its sites to reopen following the Covid lockdowns. In the US, around 97% of its theaters are now open, while in the UK, its domain has had a good opening weekend following the recent easing of lockdowns.

Short term potential

In the near term, the company’s shares may experience further bullish momentum. The novelty of the return of leisure activities, such as going to the movies, could lead to an increase in attendance in the coming months. Indeed, the firm pointed out in its latest results that countries like Australia and China had experienced a resurgence of moviegoers following the end of their lockdown measures. This could set a precedent for the short term performance of its own sites.

Record levels of savings accumulated by consumers during recent lockdowns may provide the financial means to visit company sites. Meanwhile, upcoming major movie releases such as James Bond’s No Time To Die, The Matrix 4, and the latest episode of Fast & Furious could be major draws for moviegoers.

Long-term challenges

However, the medium and long term prospects of the company remain extremely blurry. Lockdown measures may ease, but there can be no assurance that further containment measures will be avoided in Cineworld’s main markets of the US, UK, Poland and Israel. Variants of Covid-19 can result in higher transmission rates that leave policymakers with little choice but to impose further restrictions on the leisure sector. This would likely have a serious financial impact for the company – even if its recent update indicated that it had secured sufficient liquidity to last until the end of the 2021 calendar year.

In addition, the pandemic has caused a sudden and significant change in consumer behavior. The popularity of streaming services such as Netflix and Amazon prime soared. For example, the number of Netflix subscribers increased from 36 million in 2020 to over 200 million worldwide. Their services take the place of going to movie theaters. This could mean that a significant proportion of previous moviegoers do not frequent Cineworld sites to the same extent after Covid as they did before it emerged.

Listen: Podcast with Fraser Thorne, CEO of an Equity Research Firm Edison Group

In addition, streaming services are becoming more and more dominant in the film industry through their acquisitions of major studios. The latest activity in this area is Amazon’s $ 8.45 billion acquisition of MGM, which owns the James Bond franchise as well as many other popular titles. This could make it increasingly difficult for movie channels like Cineworld to differentiate themselves from streaming services, as they may no longer be able to rely on agreements with studios that allow them to screen new releases before everyone else. .

Safety margin

Cineworld share price outlook are extremely uncertain. Its performance largely depends on the outcome of “known unknowns,” such as the future trajectory of the pandemic, the popularity of streaming services over theaters, and whether these streaming services will increasingly dominate the film industry in Canada. broad sense through acquisitions.

Therefore, following the recent rise in its share price, it may not offer an attractive risk / reward investment opportunity. The stock market may have already taken into account a positive outlook that leaves investors little leeway in the event of new challenges ahead.


Source link