After two years of disruption, many investors, including myself, will be wondering what is next for the Cineworld (LSE: CINE) share price in 2022? Indeed, I recently changed my opinion on the company after data emerged showing that consumers were flocking back to cinemas.
Unfortunately, the company’s recent share price performance does not reflect this positive development. As such, I am wondering if the market will start re-evaluating the company next year.
The outlook for the Cineworld share price
The way I see it, three possible scenarios could play out next year. The first is the most bullish, based on the continuing recovery of the UK economy and consumer confidence.
If the trends that have played out over the past couple of months continue into 2022, I think Cineworld will be firmly on the way to recovery. Rising sales and profits will allow the group to start chipping away at its debt, which should dramatically improve investor sentiment towards the enterprise.
In the mid-ground scenario, the company will continue to bumble along at current levels of activity. The organisation will reduce losses, but profits will not be enough to make a meaningful dent in debt.
Without reducing debt, there will always be a risk that the business will have to tap shareholders for additional cash. Until the company deals with this risk, I think the stock will remain under pressure.
The final scenario is the worst. Here, the economic restrictions that were in place at the beginning of the pandemic return. Cineworld is forced to close its theatres around the world again and rely on government aid to keep the lights on.
I think there is a genuine chance the business could collapse in this scenario. Creditors are generally only prepared to support any company for a short period. If there is no end in sight to the restrictions, they may decide to pull the plug altogether.
Moving forward
I think the most likely scenario for the company is somewhere between the most bullish and the base case. As I noted at the beginning of this article, data shows that consumers are returning to cinemas. However, I think it is almost certain that rising coronavirus cases will hit consumer sentiment.
Therefore, Cineworld’s growth, which was accelerating in October and November, may slow over the next few weeks. Sentiment may begin to improve again if cases decline in the first few months of the new year.
As such, I am cautiously optimistic about the outlook for the Cineworld share price. That is why I would acquire the stock as a speculative purchase for my portfolio today. If consumer confidence continues to build in 2022, I think the company can make a good start at reducing debt and moving on from the pandemic.
Rupert Hargreaves has no position in any of the shares mentioned. 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.
