Is Cineworld a penny stock on track for an explosive recovery in 2023?

Middle-aged white man pulling an aggrieved face while looking at a screen

The Penny Stock cineworld (LSE:CINE) has taken its shareholders on a roller coaster ride in recent years.

After the pandemic decimated its business model, the cinema operator struggled to find the cash to pay off its huge debt. Couple that with a botched takeover that turned into a legal battle that the group lost, and it all culminated in a U.S. Chapter 11 bankruptcy filing in September.

As a result, the stock price since the start of 2020 has crashed over 98%, leaving many investors with a sour taste in their mouths. But just earlier this week, the stock price exploded, jumping more than 180% in a single day.

What happened? And is this business finally making its long-awaited comeback?

Understanding Cineworld Penny Stock Behavior

Seeing single-day triple-digit moves in a stock’s price is rare for most companies. Yet this type of volatility is not too uncommon in the land of penny stocks.

There are undoubtedly many factors at play, particularly on the short selling side of the equation. But the main catalyst for this recent upward trajectory has been news that management has reached an agreement with its owners and lenders.

Without going into too much detail, the group is accessing additional debt financing of $150 million. It was also able to erase $1 billion from its existing pile of loan obligations. In exchange, management agreed to pay $20 million in monthly rent, opened the door to possible buyout offers and invited its creditors to comment on its business strategy going forward.

In other words, Cineworld might not be going down the drain after all. Considering the fierce number of objections at the start of this bankruptcy saga, this is quite a surprising outcome. Nevertheless, this is great news for the shareholders of this penny stock.

Time to buy?

As encouraging as this week’s announcement was, there’s still a long way to go for this company. And it’s not quite out of the woods.

Even after eliminating $1 billion in debt, that still leaves about $8 billion worth of loan equivalents on its books. And with interest rates in the US and UK still being raised by central banks to fight inflation, it may need additional help and cooperation from its creditors.

This short-term uncertainty will likely create intense volatility in both directions over the coming months. And even in 2023, a clear path to recovery may not have emerged for this penny stock. Moreover, its weak financial situation potentially opens the door for its healthier competitors seeking to gain market share as the next line of blockbuster titles emerges.

All things considered, Cineworld has undoubtedly taken a step in the right direction. But today there are much better low-risk investment opportunities elsewhere.

The post office Is Cineworld a penny stock on track for an explosive recovery in 2023? appeared first on The Motley Fool United Kingdom.

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Zaven Boyrazian has no position in any of the stocks mentioned. The Motley Fool UK has no position in any of the stocks mentioned. The opinions expressed on the companies mentioned in this article are those of the author and may therefore differ from the official recommendations we give in our subscription services such as Share Advisor, Hidden Winners and Pro. At The Motley Fool, we believe that considering a wide range of ideas makes us better investors.

Motley Fool United Kingdom 2022

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