Should I buy CINE shares after the crash? Yes, here’s 3 reasons why

The share price of Cineworld (LON: CINE) was trading at just 17p this morning following confirmation it was to close all of its UK and US cinemas for the foreseeable future.

It has since ‘recovered’ a little to trade at 25p with a m. cap of nearly £400m – netting those that bought on the huge dip this morning a paper return of over 60 percent at the time of writing.

At a price of 17p per share, CINE looked a ‘steal’ despite the pandemic headwinds. We provide 3 reasons why shares in CINE may be worth a buy should there be a further crash in its price during the day or later in the week.

CINE shutting down temporarily in the UK and US was the best move for shareholders

Temporarily shutting down its business in the UK and US was a better move than the initial panic it suggests. Attendances were low, there were few blockbusters released. So long as it remained opened to satisfy a limited number of cinema-goers, it was just burning masses of cash with unnecessary operating expenses.

It will now cut a huge chunk of its operating expenses which it will allow it to preserve cash and have a better change of survival.

Just as airlines have grounded their fleet to preserve crash, CINE has looked to ground its cinema screens.

Now for reasons number 2 and 3.

The chance of acquisition increases each time the market value drops significantly

This morning the share price of CINE was at around £250m – which seems unthinkable. This is why the buys rapidly ploughed back into CINE.

Ending of the paramount decree which could theoretically allow a Hollywood giant to buy CINE as well as speculation that a Chinese investor has been building a big stake in the firm with a view to acquisition show there is acquisition potential here in the worst case scenario.

It’s certainly not curtains for the Cinema, it’s just not viable at the moment

No big screen TV and no comfy living room set-up can beat the experience of watching a blockbuster at the cinema. Before the pandemic, the cinema wasn’t in a rapid decline such as the traditional retail sector, it just isn’t possible to visit a cinema safely at the moment.

With properly-developed rapid COVID-19 testing early next year, we’d expect CINE to have another pop at reopening and for film producers to release their blockbusters once more.

And the world will not be in a pandemic forever. At some point it will be safe to visit a cinema or to go to a football stadium – these things will not change and there will be just as much demand for these activities after the pandemic as there was before.

Therefore, the combination of CINE now giving itself the best chance for survival, acquisition interest likely to increase and an industry not in permanent decline gives a compelling narrative for the long-term investor who is comfortable with the increased risk.

This is an opinion piece and for information purposes only. It is not a recommendation to buy or sell shares in CINE.

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