Despite the reopening of the UK economy, the Cineworld (LSE: CINE) share price has continued to trend lower since the end of March.
Investor sentiment towards the company has remained stubbornly depressed, even though the group has reopened most of its theatres and expects a slate of blockbusters to attract customers over the next few months.
Cineworld share price performance
This performance is surprising. The company’s management seems to agree. Alongside Cineworld’s recent results release, management said it’s considering a secondary listing for the equity in the US.
Reading between the lines, it looks as if management has been watching what’s happened to the share price of Cineworld’s US peer, AMC, and it wants a piece of the action.
I don’t blame them for holding this view. After all, management has a responsibility to achieve the best results for the company’s investors.
In this case, the CEO and his deputy, Mooky and Israel Greidinger, are some of the company’s largest shareholders. The Greidinger family trust owns 20% of the business.
While it’s impossible for me to say when the Cineworld share price will stage a recovery, I’m inclined to believe it will eventually recover its pandemic losses. I say this because the Greidingers are highly incentivised to improve the performance of the stock. Not only is the family trust the largest investor, but their compensation over the next few years is also tied to the performance of the equity.
Of course, just because management is incentivised to achieve the best returns doesn’t mean it will. There’s plenty that could go wrong for the company over the next few years. If theatre takings fall flat, the organisation may have trouble paying off its creditors. With more than $8bn of debt on the balance sheet, this is a pressing issue.
Another challenge is the rise of online streaming. A Cineworld adult ticket costs between £10 and £16. That suggests a couple could pay as much as £32 to see a film. With a Netflix plan costing just £10 a month, the difference in prices is significant. This may put many consumers off.
Considering all of the above, I think the Cineworld share price will likely stage a recovery in the long term. However, I can also see plenty of risks and challenges on the horizon of the group. There’s no guarantee the firm will overcome these challenges. It’s impossible to say at this stage whether or not the company will be able to continue to grow in the post-pandemic world.
Considering this uncertainty, I’m not going to buy the stock for my portfolio. I’m pretty happy to sit on the sidelines and watch its recovery take shape, with the view to possibly taking a position at a later date.
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Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Netflix. 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.