The FTSE 250 index has seen a strong rise in the past year. And as would be expected, many constituent stocks have done quite well too. But there are some stocks that have really lagged behind, even though until not very long ago, they looked like stocks worth at least considering if not actually buying yet.
What’s up with the Cineworld share price?
One of these is the cinemas operator Cineworld (LSE: CINE), which was the biggest FTSE 250 faller of the year up to 20 December, a recent Interactive Investor ranking showed. It has seen a decline of over 50%, much bigger than that for the next biggest faller, Trainline, which has dropped by around 40%. When I step back and look at the big picture, it seems to me that Cineworld has been really, really unlucky.
Management made a big, bold move to acquire Regal Cinemas in the US by taking on huge debt a few years ago. I was nervous about the move even then, but it did not look quite as challenging as it does now. As long as Regal Cinemas continued to generate big revenues, it was entirely possible that it would have been able to pay off its debts. No one could predict that we would witness a global pandemic soon after. This necessitated taking on even greater debt, making its financial position even more precarious than before.
Why I’m bullish on the FTSE 250 stock
But I am still pretty bullish on Cineworld stock, enough to have bought it earlier in the year. And I intend to hold it for some time at least, even though it is in a dismal place right now. It shed its penny stock status earlier in the year, but quickly fell back to below 100p as uncertainty about the recovery continued. It is trading at 32p as I write. But I am bullish because of its high sensitivity to incoming developments.
Each time there is bad news on the virus, the stock dips and vice-versa. A similar pattern is visible when new movie releases happen. Blockbusters like the latest James Bond and Spider-Man movies have encouraged its share price upwards in the recent past. If the stock is so sensitive to relatively small developments, imagine how it would perform if we were to well and truly put the pandemic behind us. I think that could happen sooner rather than later. Just look at the progress we have made in the past year.
What I’d do
Of course it is always possible that we go into a lockdown in 2022, and stay there for a while. And that would impact Cineworld even more. But instead, I think the chances are that we could be out of the pandemic soon. I am sticking with the stock for now, even though it is undeniably risky. I might even buy more.
The post Cineworld stock could be 2021’s worst FTSE 250 performer. Here’s what I’d do 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.