At the height of the novel coronavirus pandemic, the closure of movie theaters created steep uncertainties around AMC Entertainment (NYSE:AMC) and its survival. AMC stock traded as low as $1.91 at the start of 2021.
The company’s continued stock sales and debt issuance to raise cash only hurt investors.
When Redditors orchestrated a short-squeeze on GameStop (NYSE:GME) on Jan. 27, AMC shares rose with it. The stock held up well since then. This time, the reopening of all movie theatres in the U.S. is supporting its uptrend. And this time, AMC Entertainment’s risks of bankruptcy may have disappeared. Its prospects are rapidly improving.
Reopening Supports Rise in AMC Stock
On March 15, AMC announced that it would open two of its flagship locations in Los Angeles. The reopening of AMC Burbank 16 and AMC Century City 15 followed with 23 more movie theaters reopening in the region. On March 19, AMC said that 98% of its U.S. locations would be open.
Bulls who bid shares of AMC higher are not asking if people will flock back to theatres. Theatergoers may shun watching a movie in such a confined space. Expect weak initial theatre attendance. As the U.S. rolls out the Covid-19 vaccine to all its citizens, the fear of going outside and in confined spaces will drop. This should lead to a steady increase in movie attendance.
Once the U.S. reaches almost 100% vaccination, health agencies may lift their restrictions on movie theater capacity limits. Currently, AMC will meet or exceed all state and local regulations regarding seating capacity. It is already selling movie tickets online. So, once people order them, the system automatically blocks surrounding seats to help ensure social distancing measures.
Cleaning Procedures at Theaters
AMC cleans every auditorium between each showtime. Its staff disinfects handrails, doors and other hard surfaces. Seating areas and auditorium fixtures are disinfected each night. The cleaning crew uses vacuums with HEPA filters on carpeted areas. Though AMC said it uses minimum efficiency reporting values 13 air filters, this does not protect people from Covid-19.
The U.S. Environmental Protection Agency said best practices recommended by the Centers for Disease Control and Prevention and the upgraded HVAC filter will maximize the protection against the virus.
AMC needs to actively promote its cleaning efforts to win customer confidence. Though demand for streaming services soared in the last year, people will revert to old habits. They will want the movie experience, instead of staying at home to watch.
In the scorecard shown here, the stock sentiment is AMC’s only redeeming quality. The 76/100 score reflects the recent surge in shares. If investors lock in profits and send the stock back to new lows, the sentiment score will fall. Conversely, AMC has very poor value and limited growth. The growth score is poor, due to weak historical sales and negative EBITDA growth this year.
AMC is a speculative bet that could pay off. It is also highly risky. A short-squeeze on the stock may have temporarily lifted its price. Once the covering and associated buying end, AMC may drift lower.
Investors should treat the stock as a short-term trade. That requires watching its trading action daily. If it dips for a few days in a row, it is a sell. And if the stock bounces back on strong volume in a single day, it is a short-term buy.
Disclosure: On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Lau is a contributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get original insight that helps improve investment returns.