AMC Entertainment (NYSE:AMC) has had a terrible year, no matter how you look at it. The novel coronavirus pandemic shuttered its theaters for months. When they re-opened, there were no blockbuster movies to show and customers remained wary. Movie production companies have been pushing their big releases to 2021. Some skipped theater releases altogether, instead of making the most of a bad situation by sending them straight to streaming services. That has understandably been a horrible combination for AMC stock. As of last Friday, it was down 66% in 2020.
That “as of last Friday” point is a very important distinction at the moment. Over the weekend, it was announced that a leading coronavirus vaccine contender had proven over 90% effective in early trials. That news is likely to hit competing pharma companies that have seen their share prices rocket in value this year as they race to be first to market with a vaccine. The other effect is already being seen in premarket trading.
Yesterday, AMC stock was up over 75% before markets opened. Now things are starting to level out a bit. Should you get in on that rush?
A Vaccine Is Just the Start
Finding a coronavirus vaccine that works is great news. However, it is not a silver bullet that will immediately end the coronavirus pandemic challenges.
The vaccine will need to get approval for use. Then production needs to ramp up. Then distribution. Enough needles and syringes need to be produced and distributed. Then plans need to be made for who gets the vaccine and in what order. The U.S. government has estimated that, at best, it will be the middle of 2021 before most Americans are vaccinated.
There will inevitably be pushback from anti-vaxxers who refuse the vaccine. Combine that with imperfect effectiveness (although greater than 90% would be excellent), and it could take time after vaccinations begin before it’s once again deemed safe to congregate in numbers.
Other Factors Will Weigh on AMC Recovery
For AMC, there are more problems than not being able to pack people in its theatres. The U.S. is officially in a recession, and has been for much of 2020. When finances are tight and people are unemployed, discretionary spending like a night out at the movies tends to fall by the wayside. If the recession continues, that is likely to weigh on AMC’s prospects.
Perhaps worse, the pandemic has caused a shift in the movie business. Many blockbusters have had their release dates pushed into 2021. Other movies had their production shut down by the pandemic, so there will be a shortage of new films in the pipeline.
Others, like Mulan, skipped theaters altogether and went straight to streaming video. There are signs that the pandemic may have changed the studio/theater relationship permanently. Multiple studios are now making plans to shorten the exclusivity window for theater chains like AMC, pushing new movies to streaming services in as little as 17 days after release.
Bottom Line on AMC Stock
Three weeks ago, AMC was warning it could run out of cash by the end of the year. The company was trying to negotiate rent reductions with landlords and looking to sell assets. AMC stock was ‘F’ rated in Portfolio Grader, and it remains ‘F’ rated today — despite the market exuberance about the coronavirus vaccine.
I am skeptical that the positive view of AMC is going to last. The reality of the length of time needed to distribute a vaccine once approved is going to hit hard. Then there are all those other challenges: a lack of blockbuster movies, shortened theatrical release windows and the possibility of tightened consumer spending.
If you think AMC is going to come out of this crisis stronger than ever, maybe you know something I don’t. And something the investment analysts who cover AMC don’t know — because none of them are looking at this company as a recommended investment at this point. However, if you’re determined to roll the dice on AMC stock, do yourself a favor and don’t do it now, just as the price is spiking on that coronavirus vaccine news. Wait until the excitement dies down.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.