The Cineworld Group (LSE: CINE) share price has risen by a healthy 28% over the past 12 months. But after touching its 2021 peaks near 125p in March, demand for the UK leisure share has cooled significantly. It was last trading just below the 70p-per-share marker.
Does this provide a great dip buying opportunity for long-term investors looking for turnaround shares? City analysts think Cineworld will reduce pre-tax losses to around $579m in 2021, from above $3bn last year. And they think the cinema chain will bounce back into the black, with profit of $66m in 2022.
Reasons why prices could soar again
There are several strong reasons why the Cineworld share price could jump again and keep rising. These include:
- Signs of continued strong customer demand. Recent box office news has been extremely encouraging on both sides of the Atlantic. In Cineworld’s core US and UK markets, cinema attendance figures are already back to around 50% of pre-pandemic levels, data shows. It suggests that the public’s long-running love of watching films on the big screen remains in tact.
- Takings could soar from Q4. A strong end to 2021 is possible and that could give a fresh boost to Cineworld’s share price. A robust schedule of new releases from several money-spinning franchises including The Matrix, Spider-Man and James Bond exists for the next few months. And the crowd-pullers are set to keep coming over the next 12 months as the Covid-19-related release backlog is steadily cleared.
- Steps to improve liquidity continue. Concerns over Cineworld’s survival have remained high ever since it warned of its struggle to remain a “going concern” in March 2020. But the business has been taking regular steps to keep bolstering the balance sheet, and it secured $200m worth of loans in late July.
Is Cineworld’s share price still too high?
All that being said, the risks to Cineworld and its share price remain significant. First and foremost the business still has an enormous amount of debt on its books ($8.4bn as of June). This costs a fortune to service and could severely hamper its growth strategy long into the future.
Naturally, this is particularly dangerous as Covid-19 cases in the US and the UK rise sharply again. A mass closure of Cineworld’s theatres in response could push the business to the brink under the weight of this debt.
Then there’s the long-term threat posed by increasing demand for other entertainment forms. The growth of streaming, as the likes of Netflix invest in technology and programming, is one obvious danger. Though other fast-growing forms of entertainment like video gaming pose another problem for Cineworld and its peers.
I don’t think Cineworld’s share price fully reflects these dangers. In fact a price-to-earnings (P/E) ratio approaching 30 times makes it look pretty expensive. There’s plenty of other lower-risk UK shares I’d rather buy right now, like the following tech titan.
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Royston Wild 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.