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Here’s why Cineworld share price is crashing today

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Paul Summers
·3-min read
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An illuminated Cineworld sign
An illuminated Cineworld sign

Let’s be honest. No one expected today’s full-year numbers from battered FTSE 250 stock Cineworld (LSE: CINE) to be anything but derisory. So, why is the share price crashing if all this could have been anticipated by investors?

Staggering loss

The chief reason for today’s fall seems to be due to the numbers being even worse than expected.

Having been forced to close its sites from mid-March last year, Cineworld’s revenue tumbled 80.5% to a little over $852m. There were only 54.4m ticket admissions over the period, compared to 275m over the previous 12 months.

Naturally, this horror show fed down to the bottom line. From making a pre-tax profit of $212.3m in 2019, Cineworld revealed a staggering £3bn loss for 2020.

However, the company did what it could to preserve cash and reduce costs over this period. Even so, it was still forced to seek funding to stay afloat, bringing in just under $811m in additional liquidity. Today, it announced it had secured another $213m from institutional investors to see it through 2021.

Watch: Cineworld raises more cash as annual losses top $3bn

So, where next for the Cineworld share price?

Since hitting a record low in October last year, the Cineworld share price has climbed 300%.

As much as I’d have enjoyed such a huge gain, the Foolish philosophy is to buy shares in great companies for the long term. Already heavily indebted before the coronavirus reared its ugly head, Cineworld isn’t a great company, at least in my view. Nor are its prospects good enough to lead me to think that the shares will outperform other London-listed stocks over the next five or 10 years.

Sure, there are some things to be positive on, one of which is the strong movie pipeline. ‘Mission Impossible 7′, ‘No Time to Die‘ and ‘Top Gun 2‘ are all scheduled for release later this year. The belief that there’s a lot of pent-up demand to get back to the cinema also has legs to it.

As the company said today, the theatrical industry in China, Japan and Australia has performed well since those markets reopened. Indications that the psychological impact of the coronavirus hasn’t been long-lasting are encouraging. Today aside, perhaps the Cineworld share price will continue rising over the next few months?

Opportunity cost

As things stand, Cineworld anticipates reopening its US sites on 2 April. In accordance with Boris Johnson’s roadmap, the UK estate will follow suit on 17 May.

However, if the last year has taught us anything, it’s that nothing’s ever guaranteed. There’s still a chance cinemas might be forced to close again, particularly if recent flare-ups of coronavirus in Europe aren’t contained. Such a scenario would likely require Cineworld to go cap-in-hand to investors for yet more cash. This is probably the other reason why the share price is falling today.

Is this a risk I’d be willing to take? No, especially given the opportunity cost of not being invested elsewhere. There are many great, far less indebted UK companies more deserving of my cash.

Today’s drop in the Cineworld share price may be regarded by some as a chance to get involved before the real recovery starts. For me, however, it’s simply confirmation that the stock is best avoided for those who like to sleep at night.

The post Here’s why Cineworld share price is crashing today appeared first on The Motley Fool UK.

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Paul Summers 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.

Motley Fool UK 2021