AMC Entertainment Shares Aren’t Worth the Price of Admission

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To avid film industry buffs, AMC Entertainment (NYSE:AMC) is renowned as one of the world’s biggest theater operators. And, AMC stock and its ups and downs are a fairly accurate gauge of not only the company’s financials, but the health of the movie-theater market as a whole.

Image of the entrance of an AMC Entertainment (AMC) branded theater. undervalued stocks
Source: Helen89 / Shutterstock.com

Naturally, the most significant factor affecting that market in 2020 is the onset of the novel coronavirus. Some people are choosing, for health-related reasons, to avoid movie theaters entirely. Others are attending theaters but only occasionally.

Some optimistic traders might point to AMC’s size and geographic spread as advantages during this challenging time for the movie-theater market. That’s a fair point, and it might explain why AMC hasn’t completely collapsed.

On the other hand, few market technicians would claim that AMC is doing extremely well, either. Moreover, a closer look at the numbers might reveal the deeper struggles of a global film-market icon.

A Closer Look at AMC Stock

It appears that the bulls have been trying very hard to rescue AMC from penny stock status. The U.S. Securities and Exchange Commission defines a penny stock as one that trades for less than $5.

At the end of 2016, it was unimaginable that AMC would be a penny stock. Back then, the shares were trading near the $35 level.

Then came what I refer to as the Netflix (NASDAQ:NFLX) effect. Long before the global pandemic shook the movie-theater industry to the core, people started enjoying the convenience and the cost savings of viewing movies at home.

The pandemic exacerbated this trend, of course. Thus, the decline in AMC started in early 2017 and persisted until the shares bottomed out in April 2020 at $1.95.

Today, the bulls and the bears are battling it out at the $5 level. If the buyers can push the AMC price above $5 and keep it there for a while, then maybe they’ll have the upper hand in 2020’s final quarter.

A Million Ain’t Much

Not long ago, AMC boasted in a press release that “since reopening on August 20” the company crossed “the 1,000,000 attendance mark” in terms of moviegoers returning to AMC’s theaters.

The trading community’s response to that figure was less than stellar. 1,000,000 returning moviegoers might sound like a huge number. If you break that down on a per-theater basis, however, it’s not so impressive.

Total domestic movie theater attendance was 1.244 billion last year, and that was already a 4.6% decline compared to 2018. AMC has a giant presence in the American movie-theater market, so 1,000,000 theater goers is a drop in the bucket.

Not Worth the Risk

For the weekend of Sept. 25 through 27, the highest-grossing movie, Tenet, raked in around $3.4 million in gross receipts domestically. That’s nothing to write home about, and it just gets worse from there.

The second- and third-highest grossing films barely reached the $1 million mark. Everything below that on the list, including a Star Wars movie, didn’t even generate $1 million.

As Jeff Bock, senior analyst at Exhibitor Relations, explains, even with safety protocols in place, it seems that many film fans aren’t ready to venture out to theaters:

“… many of these theaters are opening in states and cities that still don’t have a handle on the spread of this virus. So, as nice as it is to see new content in theaters, many people simply won’t take the risk, and the ones that do could easily be exposed to the virus.”

Besides, there’s a cost to maintaining safety protocols. AMC is currently allowing 25% to 40% of maximum attendance capacity in its theaters. That’s understandable for safety-related reasons, but it’s sure to have a negative impact on AMC’s bottom line for the foreseeable future.

The Bottom Line

Just as film goers are struggling with safety concerns, AMC stock bulls will struggle to keep the share price up. Prospective investors should want to see better attendance numbers before taking a chance on this embattled theater-chain giant.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.

David Moadel has provided compelling content – and crossed the occasional line – on behalf of Motley Fool, Crush the Street, Market Realist, TalkMarkets, TipRanks, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.


Article printed from InvestorPlace Media, https://investorplace.com/2020/10/amc-stock-shares-arent-worth-the-price-of-admission/.

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