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The Cineworld share price is up 80% in a week. Is it still my contrarian pick?

Manika Premsingh
·3-min read
Businessman standing in front of screen
Businessman standing in front of screen

When I wrote about buying the FTSE 250 multi-national cinema chain Cineworld (LSE: CINE) stock a week ago, I was as contrarian as I have ever been. But now, things have changed. The Cineworld share price is up almost 80% as I write, having made some seriously smart gains in the blink of an eye.

Why is the Cineworld share price rising?

At any other time, this would have been a surprising development. But not now. There’s a broad stock market rally underway. The FTSE all-share index has gained 4% in November, after losing ground for four months. Pfizer and BioNTech’s success in vaccine trials have made investors bullish again. Added to that, another US-based pharmaceutical company, Moderna, has found even more success in its vaccine trials. Other companies’ vaccine trials are underway too. I expect that at least some of them will also deliver positive results.

In other words, the possibility of getting past Covid-19 just became even more real. In the meantime, improved sentiment and continued government and central bank support will keep stock markets buoyant in my view. The biggest gainers will be stocks related to pubs, restaurants, cinemas, gyms, airlines, hotels, and tourism. Cineworld is one example of this kind of stock.

How much more can it increase?

The one question that now comes to mind is: How much more can the Cineworld share price rise? A lot more I expect, probably. The sharp drop in CINE’s share price is more recent than we might think. It isn’t until August that it fell below the present levels of 50p. It stayed at sub-30p levels through almost the entire month even more recently, in October, driven by the continued toll taken by Covid-19. By comparison, even in March, when the stock markets crashed, the share price fell below 30p on exactly one day.

I wouldn’t hazard a share price target for CINE just yet, but I am thinking along the following lines about it. In February, when the coronavirus was just about looming on the horizon, the Cineworld share price was more than three times its current levels. It was almost four times that on average in January. If we are to re-imagine the world devoid of the virus again, this gives an idea of how much scope there is for continued share price rise.

The verdict

Of course, in the meantime, we need to take into consideration the FTSE 250 stock’s weakened financials, which could dampen the extent of its rise. I think its liquidity issues, for instance, could continue to be a challenge in the near term. But hopes of overcoming them are higher too, adding to other factors supporting the stock, also in my last week’s piece. In my view, the case for Cineworld just got stronger. And the risks to buying it declined. After having seen my easyJet shares come back in the green recently after a long while in red, I’m even more encouraged to add CINE to my portfolio.

The post The Cineworld share price is up 80% in a week. Is it still my contrarian pick? appeared first on The Motley Fool UK.

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Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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