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Cineworld shares are down 30% in a year. Here’s why I’d still buy the penny stock

Cineworld cinema

2021 has been both good and bad for the stock markets. In the first part of the year, the momentum seen after vaccine development carried the markets along. However, in the last few months, there has been a lot of uncertainty. Still, many stocks have been able to sustain at least some gains from the past year. Unfortunately, the FTSE 250 cinema operator Cineworld (LSE: CINE) is not one of them. The stock is down by a whole 30% from the year before!

What’s up with the Cineworld share price?

After rallying to a high of 122p in May this year, the Cineworld share price has come crashing down back to penny stock levels. It has lost more than half its value from May’s highs and is now trading at 45p. The stock has slid down in value over the months, but the past month has been particularly bad for it. It has lost 34% of its value since!

This drop is unsurprising, though. It is a classic recovery stock, which is hyper-sensitive to any Covid-19-related developments right now. And since the Omicron variant has brought some bad news with it, the Cineworld stock has tanked. In fact, this is true for other recovery stock as well. In another article today, I talk about FTSE 100 travel stocks, which have suffered a similar fate in the past month. 

Why I’m hopeful for the penny stock

But I am quite hopeful about the stock’s prospects for exactly this reason. When a stock fluctuates a lot, it is as likely to run up as to crash. So if the news flow were to turn positive again, I reckon it could rise back up. And I say this as an investor in the stock, with real money on the line here. Of course in the meantime, it is a test of patience for investors like me, because pandemic-related uncertainties have stretched for almost two years now. 

At the same time, I think there is more reason to be hopeful now than not. For one, there are no lockdowns in Cineworld’s biggest markets of the US and UK, at least not yet. Both countries appear more inclined to tackle the latest variant through booster shots than restrictions. So, let us see if there is a hit to the company’s business again. Even if there are lockdowns, they are unlikely to last as long as they did earlier, given both the severity and extent of the situation so far. 

What I’d do now

I also like to check analysts’ forecasts for stock prices to get a better sense of the mood around the stock. And in this case it is unanimously bullish. On average they expect a 93% rise in its share price as per Financial Times data. I have already bought the stock, but if I had not, I would buy some now. There is of course still risk to it, because we do not know how long the pandemic would stretch out. But at the same time, I would invest some being fully aware of the risks, given the potential upside to the stock.

The post Cineworld shares are down 30% in a year. Here’s why I’d still buy the penny stock appeared first on The Motley Fool UK.

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Manika Premsingh owns 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.