The Cineworld (LSE:CINE) share price has faced many hardships due to Covid-19 restrictions. Cinemas, as well as other sectors in the entertainment industry, closed their doors for prolonged periods due to lockdown restrictions. But fixed costs weren’t going anywhere. And so liquidity remained under some significant stress, especially with revenues seemingly disappearing overnight.
Now that all lockdown restrictions in the UK have been lifted, is the Cineworld share price on the verge of making a comeback? Let’s take a look.
What was Cineworld doing before the pandemic?
To see whether Cineworld can grow over the long term, I believe it’s essential to know how the company was doing before Covid-19 entered the picture. After all, if a business was struggling before the pandemic, chances are it will continue to do so after.
Taking a look at the firm’s 2019 balance sheet, one thing that immediately stands out is the level of debt. The firm already had a substantial $7.82bn of loans outstanding as a result of its capital raising activities to fund its acquisitive growth strategy.
Consequently, Cineworld’s interest bill was pretty large. In fact, most of the limited underlying profit generated from selling tickets and popcorn went to simply cover these expenses. Looking at the balance sheet today, things have only gotten worse.
With cinemas forced to close their doors, the management team had to borrow even more money to keep up with expenses. As such, total debt has continued to rise to $8.6bn. Increasing its interest expenses even further. Needless to say, this does not bode well for the Cineworld share price. But there are some reasons to be optimistic.
The Cineworld share price could start rising
Cinemas are re-opening, and after a year of being confined, the demand to enjoy the big-screen experience is sky-high. What’s more, with a long lineup of blockbuster titles like Venom 2, Mission Impossible, and James Bond, Cineworld should have no problems filling its seats. That’s fantastic news for Cineworld and its share price.
There have been some rising fears from investors regarding the impact that home-streaming companies like Netflix and Disney+ will have on the cinema industry. However, personally, I think consumers will be more than happy to continue paying the premium to watch films on the big screen. Why? Because the experience is simply far more enjoyable. At least, that’s what I think.
Overall, it seems the revenue is flowing once again, and Cineworld can now focus on repairing its balance sheet.
Conclusion
In my opinion, Cinemas are an essential segment of the entertainment industry. I have no doubt that individuals will rush to fill the seats as new titles are released. And so, I do think the Cineworld share price can start rising again.
Having said that, the firm remains highly leveraged now more than ever. That creates quite a high-risk profile which I’m not interested in adding to my portfolio. Therefore I’m keeping Cineworld on my watchlist for now.
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Emanuela Sula does not own shares in any of the companies mentioned. The Money Cog has no position in any of the companies mentioned. Views expressed on the companies and assets mentioned in this article are those of the writer and therefore may differ from the opinions of analysts in The Money Cog Premium services.