It’s easy for anyone to see that Cineworld (LSE:CINE) shares have taken a pounding over the last few years. I bought the shares during the depths of the pandemic because I thought at some point the cinema firm would enjoy a recovery.
However, there appears to be more to this story than meets the eye. Let’s take a closer look.
Some worrying news
The company recently released a statement saying that sales hadn’t recovered at the required pace, and that it would have to deleverage in order to survive. This essentially means issuing more equity to reduce debt.
As a shareholder, this was worrying because it means that my current holding may be diluted and be worth even less than it was before.
Shortly after it said it was potentially filing for bankruptcy in the US. This is another indication that the firm could be on the verge of financial destruction.
The market understandably interpreted both of these news stories negatively and the share price plunged from around 25p to 2p. At the time of writing, the shares are trading at 5.7p.
Financial woes
The pandemic and its associated restrictions forced the closure of cinemas worldwide. This had a devastating impact on the firm, and it slumped to significant pre-tax losses in both 2020 and 2021.
With dwindling revenue, it decided to take on more debt in order to continue its operations. This debt pile now stands at $9.23bn with a cash balance of just $354m.
The bad state of affairs that Cineworld now finds itself in started earlier, however. It tried to expand aggressively, buying Regal cinemas in the US and attempting to acquire Cineplex of Canada.
The latter deal was botched, and a lawsuit is ongoing. The result could determine whether Cineworld has to pay $1bn in damages.
Why I’m not selling
While most of the news about the company is negative, I don’t see much point in selling all my shares at the moment.
There are a few reasons for this. One is that there’s an attractive movie slate on the horizon, with films like Avatar 2 scheduled for release.
Also, there’s no telling what could happen in the coming weeks and months. While a takeover by a rival, like AMC Entertainment, is speculation at this moment in time, it’s not outside the realms of possibility.
Finally, I’m down so much on my initial investment already, I might as well wait and see if there’s any good news that can come from the business.
Overall, I wouldn’t yet say that my shares are worthless. I do admit, however, that this might become a reality soon. The business doesn’t appear to be healthy, and it may even be dying. So, while I won’t be selling my shares in a panic, I certainly won’t be adding to my current holding.
The post Are my Cineworld shares quickly becoming worthless? appeared first on The Motley Fool UK.
5 stocks for trying to build wealth after 50
Markets around the world are reeling from the current situation in Ukraine… and with so many great companies trading at what look to be ‘discount-bin“ prices, now could be the time for savvy investors to snap up some potential bargains.
But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.
Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…
We’re sharing the names in a special FREE investing report that you can download today. We believe these stocks could be a great fit for any well-diversified portfolio with the goal of building wealth in your 50’s.
Claim your free copy now
setButtonColorDefaults(“#5FA85D”, ‘background’, ‘#5FA85D’);
setButtonColorDefaults(“#43A24A”, ‘border-color’, ‘#43A24A’);
setButtonColorDefaults(“#FFFFFF”, ‘color’, ‘#FFFFFF’);
})()
More reading
Up 50% in hours, is the Cineworld share price a bargain?
Why the collapse of Cineworld shares was predictable
Cineworld shares tank as firm considers bankruptcy
Is it Foolish to buy Cineworld shares?
Cineworld shares crash: here’s what I’m doing
Andrew Woods has positions in Cineworld Group. 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.