The Cineworld share price: why I’d sell right now

first_img “This Stock Could Be Like Buying Amazon in 1997” The last time I covered the Cineworld (LSE: CINE) share price, I noted that while the stock looked cheap after recent declines, as an investment, it was a risky proposition. This turned out to be the right advice. Following the company’s decision to shut all of its UK and US screens, it now looks as if the business is fighting for its very survival. 5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…And if you click here we’ll show you something that could be key to unlocking 5G’s full potential…As such, I think it could be time for investors to cut their losses and sell the stock. Today I’m going to explain why I hold this view. Cineworld share price: further to fallAt the beginning of the coronavirus pandemic, Cineworld’s management pulled out all of the stops to try and steer the business through the uncertainty. These efforts helped steady the ship, but it’s starting to look as if they weren’t enough.The company entered the crisis with a fragile balance sheet, which limited its options. At the beginning of the crisis, Cineworld’s net debt to earnings before interest tax depreciation and amortisation (EBITDA) ratio was around five. As a rough guide, a company with a net debt to EBITDA ratio of more than two is considered to have a lot of borrowing.So, even before the crisis, Cineworld’s financial position was precarious. And following the pandemic, customers are wary about spending two hours in an enclosed space with other people. As a result, even though the group had reopened many of its theatres, attendance remained so low the firm wasn’t covering its operating costs. Therefore, closing cinemas will help the company. It‘s currently burning around $50m a month keeping the theatres open. But this is only half of the picture. Cineworld still has to meet the interest obligations on its $8.2bn of net borrowing.In the six months to the end of June, interest costs on this borrowing amounted to $310m. This is why the Cineworld share price has slumped in 2020. The numbers suggest the group needs $620m a year just to sustain its debt.For comparison, the group’s current market capitalisation is just under $450m (£346m). Cut losses Considering all of the above, I think investors should cut their losses and sell the Cineworld share price. The group has so much debt it looks as if a restructuring is almost inevitable. In this situation, shareholders may be left with nothing. As such, while it may be tempting to buy or double down on the stock after its recent declines, I reckon investors should stay away.The chances of insolvency have increased dramatically this week, and even if the company can stage a recovery, its colossal debt pile will remain a drag on growth for years to come. In my opinion, there are plenty of other companies out there that offer better growth potential with much less risk.  The Cineworld share price: why I’d sell right now Rupert Hargreaves | Wednesday, 7th October, 2020 | More on: CINE Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we’re offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our ‘no quibbles’ 30-day subscription fee refund guarantee. I’m sure you’ll agree that’s quite the statement from Motley Fool Co-Founder Tom Gardner.But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.What’s more, we firmly believe there’s still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.And right now, we’re giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool. Image source: Getty Images Rupert Hargreaves owns no share mentioned. 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.center_img Our 6 ‘Best Buys Now’ Shares Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge! See all posts by Rupert Hargreaves Enter Your Email Address I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement. Simply click below to discover how you can take advantage of this.last_img read more

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