CNWGY - Why Is Cineworld (CNWGY) Stock Down 50% Today?
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Owner of the Regal theater chain, U.K.-based Cineworld (OTCMKTS:CNWGY) is among the movie theater behemoths many investors watch closely. Today, shares of CNWGY stock plunged about 50% as investors continued to price in some rather grim news.
On Wednesday, the movie theater operator announced plans to file for bankruptcy in the next few weeks. Expectations are that Cineworld will file for Chapter 11 bankruptcy protection in the U.S., and move forward with insolvency proceedings in the U.K.
These moves are obviously viewed by many as a last resort for the company. The company is reportedly working with lenders to fund this bankruptcy process and may engage in various strategic options. These include diluting shareholders via raising equity, and/or selling assets to restructure its balance sheet.
Overall, this news isn’t good, and investors are pricing in a rather dire scenario into this stock. Since Wednesday’s high, CNWGY stock has lost more than 75% of its value in two trading days.
Let’s dive into what investors should make of this news.
CNWGY Stock Plunges on Bankruptcy News
It’s been a very tough few years for cinema operators, given the outsized shock the pandemic provided. With outright closures and the need to take on massive debt loads, theater operators like Cineworld resorted to balance sheet degradation to stay alive. Now, these moves are proving to be potentially fatal, with Cineworld’s overall business model in jeopardy.
According to recent reports, Cineworld has struggled to regain the foot traffic it enjoyed prior to the pandemic. Some of this may be due to the rise of high-quality streaming options for consumers of entertainment. Some may be due to rising costs which make a night out at the movies much less enticing to those with less to spend on entertainment.
Whatever the case, Cineworld’s attractiveness as an investment has clearly been hit hard. Investors have flocked to other “meme” investments such as AMC, bidding up shares without deference to deteriorating fundamentals. That said, Cineworld’s CEO famously said in an interview that, unfortunately, “not every stock in the U.S. market is a meme stock.”
Whether Cineworld is able to make it out of these bankruptcy proceedings in one piece or not remains to be seen. But for now, it appears investors are avoiding this stock like the plague. It’s easy to see why.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.
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