Cineworld (LON: CINE) share price crashed by more than 50% on Wednesday as the company warned about its future. The stock retreated to a low of 9.65p, which was the lowest level on record. It has dropped by more than 96% from its all-time high.
Dilution and existential risks
Cineworld is one of the biggest movie theatre chains in the world. It has operations in the United States, UK, and several other countries. It has over 9,000 cinemas and competes with companies like AMC (NYSE: AMC) and Cinemark.
The firm has had a spectacular fall from grace in the past few months. For one, it now has a market cap of just 158 million pounds. This is a small amount considering that the firm acquired Regal Cinema for over a billion.
Cineworld share price collapsed by more than 50% after the firm warned that it will dilute its shareholders in the coming months. It attributed the current crisis to the relatively low ticket sales. Further, the company hinted that moviegoers will likely return to pre-pandemic levels in the fourth-quarter of 2023. The statement added that:
“Despite a gradual recovery of demand since reopening in April 2021, recent admission levels have been below expectations. The group’s business operations are expected to remain unaffected by these efforts and Cineworld expects to continue to meet its ongoing business counterparty obligations.”
Therefore, the company will seek to raise money in the coming months. The firm, which is valued at less than 200 million pounds has over $8 billion in debt. Worse, it is also facing significant legal challenges.
For example, the firm has been sued by Cineplex for $1 billion. The lawsuit alleges that Cineworld pledged to buy it and then reneged its agreement. Cineplex won the lawsuit and appealed. Analysts believe that a win by Cineplex will lead to bankruptcy.
Cineworld share price forecast
Turning to the daily chart, we see that the CINE price nosedived sharply on Wednesday. As a result, the stock crashed below the important support level at 16.70p, which was the lowest level this year. The shares dropped below all moving averages while the Money Flow Index (MFI) dropped to the oversold level.
Therefore, there is a likelihood that the shares will continue falling as buyers flee ahead of new dilution. If this happens, the stock will likely drop to the next key support at 5p.
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