Cineworld (LSE: CINE) shares have climbed over 30% in value since the start of 2022. That’s not something I can ignore, especially as I’ve been bearish on the company for as long as I can remember.
Does the stock’s resurgence over recent weeks mean it’s now far too cheap and that there’s money to be made? Possibly. That said, there’s another company I’d be far more interested in buying right now.
Cineworld shares: Mission Impossible?
To be fair, Cineworld’s last update was actually better than I expected. Attendances had “steadily grown” over the six months to the end of 2021, no doubt boosted by the release of the long-awaited No Time to Die. The latest Spider-Man movie has also helped to improve revenue, allowing the company to generate positive cash flow again.
The forthcoming slate of movies should build on this momentum. The new Batman film, releasing in March, Jurassic Park: Dominion, out in June, and Mission: Impossible 7, debuting in September, should be nailed-on blockbusters. The removal of Plan B restrictions in the UK, including the requirement to wear face masks, could/should prove another shot in the arm for Cineworld shares.
But let’s be sensible. When it comes down to it, the odds of this business thriving again aren’t great. Even if Cineworld is successful in its appeal against the legal case it recently lost against Cineplex, the sheer amount of debt on the company’s books is a huge reason to steer clear.
The fact that it’s still the most heavily shorted stock on the entire UK stock market is another. Now throw in the competition it faces from streaming services. Speaking of which…
Taking the Mickey
If I were to buy a recovery play in the entertainment space right now, it would be US giant Disney (NYSE: DIS). Priced at a just over $200 a pop last March, the stock now changes hands for under $150.
Reasons for this weakness include a slowing of growth at its streaming platform. Last November, Disney+ announced it had added 2.1 million subscribers in Q4 of its financial year. That’s down sharply from the 12.6 million in the previous three months.
But should investors really be surprised? Having (unintentionally) timed the launch of Disney+ perfectly to coincide with Covid-19 lockdowns, it was surely inevitable that things would slow.
Yes, a few poorly-received recent Marvel and Star Wars shows may be another factor. However, we can’t deny just how lucrative this intellectual property is and, importantly, will remain. Pixar is another jewel.
For me however, its the theme parks that make Disney a buy. If the pandemic really is to end in 2022, visitor numbers should begin to rise again as international travel bounces back. Sure, a bet on Cineworld could be more lucrative in the event of a short ‘squeeze’. However, I suspect the ride with Disney stock will be considerably less hair-raising.
High-risk stock
In sum, I’d much rather add Mickey and Co to my portfolio when markets reopen on Monday. As nice as it would have been to capture the recent jump on Cineworld shares, I’m still aiming my barge pole at the company.
This is a binary bet as I see it and the prospects for long-term investors, as opposed to nimble traders, aren’t great.
Full-year numbers — including an update on its precarious financial position — will arrive in mid-March.
