Cineworld Share Price is Cheap by 83.9%, This Calculation Shows

The Cineworld share price is in a freefall as short interest in the company has soared. The CINE stock has declined in the eight consecutive days and is trading at the lowest level since January 5 this year. It has fallen by more than 50% from the year-to-date high. 

What happened: Cineworld is a leading cinema chain with operations in several countries like the US and UK. The company makes most of its money from movie attendance tickets and other discretionary items like popcorns. Therefore, the stock suffered greatly in 2020 when governments ordered many locations to shut down. 

Early this year, the stock jumped as governments in its key markets intensified their vaccination drive. This pushed the Cineworld share price up by more than 100%. Investors believed that the reopening will lead to more demand. To a large extent, they were right. Recently, many Cineworld locations have seen strong demand, helped by Black Widow. 

Most importantly, there is a sense that more people will go back to movie theatres since they did not visit these locations in 2020 during the lockdowns.

Therefore, the Cineworld stock has likely declined because of recent reports that it is the most shorted stock in London. Short-sellers bet that a company’s shares will fall. Another reason is that more countries are intensifying their battle against the Delta variant. This could push more people, including the vaccinated to avoid movies theatres.

Analysts have been muted about CINE recently. The most recent update was in June, when Berenberg analysts predicted that the stock would rise to 85p. Other ratings from Numis, Barclays, and JP Morgan were bullish on the stock. Meanwhile, a DCF valuation that considers the present value of its future cash flows shows that the stock is 83.9% undervalued.

Source: Simply Wall St.

Cineworld share price forecast

The daily chart shows that the CINE share price has dropped by more than 50% from its highest level this year. Along the way, the shares formed a head and shoulders pattern and a descending channel. It also declined below the 50-day and 25-day moving averages (MA). 

Another important metric is that the RSI shows that the Cineworld share price is the most oversold since April last year. Therefore, while the bearish trend will likely continue, there is a possibility that a relief rally will happen soon. If this happens, it could retest the psyhological level at 65p. 

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CINE shares chart

Cineworld share price

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