Cineworld Share Price Went Bonkers. Is it a Contrarian Buy?

Summary:
• Cineworld share price came back to life after the company made progress in its bankruptcy proceedings. What next for CINE?

Cineworld share price came back to life after the company made progress in its bankruptcy proceedings. The shares surged from the year-to-date low of 1.78p to a high of 9p. It has rebounded by more than 280% from its lowest level this year, giving it a market cap of over 96 million pounds. This is a remarkable downfall for a company that was recently valued at billions of pounds.

Cineworld restructuring

Cineworld filed for bankruptcy in September amid tight liquidity as its cash balances crashed to $4 million. This explains why the shares crashed to their all-time low. The stock also declined sharply because of the struggling movie theatre industry as the number of releases declined. 

Cineworld shares popped this week after the company made some progress. The company settled with its landlords and lenders on Tuesday. As a result, the company will now be able to borrow $150 million and then make a $1 billion debt repayment. This happened after the lenders dropped their opposition to debt repayment. Landlords will now receive at least $20 million in rent.

The bankruptcy judge had previously allowed Cineworld to borrow $785 million at the start of the bankruptcy proceedings. Most importantly, the parties agreed to give Cineworld a chance to sell its business to raise cash. Still, it is unclear who will buy the company as the industry faces key headwinds. 

Potential buyers include American private equity companies that have billions in dry powder. The company could also decide to first sell its Regal Cinemas business. Regal is one of the biggest theatre companies in the US.

Cineworld share price forecast

The hourly chart shows that the CINE share price has been in a consolidation phase in the past few weeks. This situation changed this week after the company’s bankruptcy events. As a result, it has become one of the top performing stocks in the UK at the beginning of the month. The shares remain above the 50-day exponential moving average.

Therefore, the stock will likely remain in this range as investors wait for more information about its bankruptcy. This will see it range between the resistance at 9 and the support at 5.6p.