It’s been a damp start to 2021 for UK share markets as the Covid-19 crisis rolls on. The same thing can’t be said of the Cineworld Group (LSE: CINE) share price though. Shares in the cinema chain are up a whopping 20% since trading kicked off in January. Compare that to the fractional rises that the FTSE 100 and FTSE 250 have recorded in that time.
There’s been no news in recent weeks to help the Cineworld share price spurt higher. Instead investors have been encouraged by the success of coronavirus vaccine rollouts in the US and Britain. It’s fed hopes of a mass reopening of its cinemas, which have been shuttered for months.
Big risks
Cineworld desperately needs to get its sites open in the near future. The additional liquidity it raised in November will let it keep the wolves from the door until May. But there remain significant factors that could prevent the UK leisure share from reopening its doors in the spring. The emergence of Covid-19 variants, and their higher resistance to vaccines, is one major threat.
There’s also the danger that the cinemas might be half empty even when they are taken out of mothballs. And this might not just be due to the enduring public health emergency.
The rising popularity of streaming has long been a threat to UK shares like Cineworld. The danger has risen considerably too since the pandemic emerged as consumer habits have changed, perhaps forever. The Netflix subscriber base alone charged past the 200m marker by the end of 2020. Membership of rival services from Disney and Amazon has also ballooned. Cinema chains will likely have a hard job trying to drag this huge legion of couch potatoes out of their living rooms.
I’d rather buy other UK shares
It’s not out of the question that Cineworld and its peers could bounce back strongly when Covid-19 passes. People have been taking trips to the cinema in huge numbers since the first screen opened in Paris in 1895. This is despite the introduction of new mass technologies like television and the internet during the 20th century.
The likes of Cineworld have invested heavily in their estates to retain their popularity. This UK share for example has been steadily rolling out its 4DX ‘extreme sensory’ technology across its British estate to boost the viewer experience. It has also been splashing the cash to freshen up its cinemas in a move that has proved extremely successful.
All that said, I still think the risks facing Cineworld outweigh the possible rewards. I used to hold this share myself in my Stocks and Shares ISA until late last year. With the benefit of hindsight, I wish I had hung on for a little longer. I sold my shares a shade below 26p versus the 76p at which Cineworld currently trades. But I think my decision to sell will eventually prove to be the correct one. This is why I’d rather buy other UK shares today.
More reading
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- The Cineworld share price has surged 15% today. What’s going on?
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Royston Wild has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Amazon, Netflix, and Walt Disney and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. 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.
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