Lately, AMC Entertainment (NYSE:AMC) has been fairly active despite the overall bearish sentiment of the stock market. For example, there has been bullish chatter about AMC stock in online forums, with “#AMCSqueeze” even trending on Twitter (NYSE:TWTR). However, trading on memes has never been a strategy that works out in the long run. As such, I prefer to take a long view and disassociate the stock from the company itself.
With that view in mind, AMC is looking rather interesting at these price levels. The company has fortified its balance sheet and liquidity position. In fact, AMC Entertainment recently had an equity offering, successfully raising $428 million in new capital. According to CEO Adam Aron, this capital raise “puts AMC in a stronger position to tackle the challenges and capitalize on the opportunities that lie ahead.”
So, here’s what you should do with AMC stock moving forward.
AMC Stock: Movie Theaters Are Here to Stay
There is a strong bullish case to be made for AMC stock as a reopening play. That is, as U.S. vaccination rates continue to go up, more and more people are now returning to their everyday lives. After being cooped up indoors for a year, we are starting to see pent-up demand for services that were restricted during the pandemic. From eating in restaurants to traveling, watching movies and attending live events, people are excited to once again participate in “normal'” life.
Last year, there was a lot of speculation about the pandemic being the final nail in the coffin for theaters. As many were forced to close down, streaming became the only viable alternative. Companies like Netflix (NASDAQ:NFLX), AT&T (NYSE:T) (which owns HBO Max) and Disney (NYSE: DIS) saw record-level subscriptions in 2020. However, it also became abundantly clear that no matter how good your home entertainment system is, nothing can replace watching a new release on the big screen.
Disney and HBO Max both experimented with different strategies to bring their movies directly to customers. Disney attempted the premium route by charging an additional $30 fee to watch new blockbuster movies on its platform. HBO Max, on the other hand, has released many movies on its platform for no extra charge.
While these companies have only released vague comments on the actual sales results of this hybrid distribution model, their silence speaks volumes. If the hybrid-distribution model had been a major success, they would be more than happy to disclose actual sales numbers.
Of course, I am speculating that the results are a little more mixed here. This is just based on the present hesitancy to release hard data — data which could spoil the ongoing narrative. That said, some of the largest blockbuster movies to come — like Fast & Furious 9 and Black Widow — are still reserved for theatrical release (the latter will release on Disney+ simultaneously).
Theaters Are Poised For a Huge Comeback
Right now, many analysts expect a robust rebound in the movie sector by as early as next year. Of course, the key determinant of this rebound was the Covid-19 pandemic. There are essentially two factors at play. The first is the extent that federal and state governments lift restrictions. The second is consumer sentiment: how safe will they feel going back into theaters?
To me, this second factor is more important, as restrictions have been steadily lifted in even the most locked-down states. Recently, MKM Partners did a survey of 1,000 moviegoers, asking respondents if they planned to watch a movie in theaters in the near future. The results were a bit surprising: “57% of respondents said yes and only 14% said no, with 29% not sure.”
This data explains the continued bearish sentiment on theaters from a certain subset of analysts. However, the speed of the vaccine rollout drove these results quite a bit. Therefore, I believe consumers could change their minds very quickly as more become vaccinated. After all, the more folks go out, the more others will be encouraged to do the same. This pattern could lead to a virtuous cycle, boosting AMC stock.
Investor Takeaway on AMC Stock
As the largest theater in the States, AMC is well-poised to take advantage of these macroeconomic tailwinds. Currently, AMC stock may seem expensive, having crested a new 52-week high above $15 today. However, this is close to where the stock price was in 2019, prior to the pandemic.
While Covid-19 has given streaming a boost, I also believe it has shown that theaters offer a unique experience. Because of that, the infamous pre-pandemic forecast — that streaming will displace movie theaters long-term — has become less valid. All in all, I believe that AMC stock is a reasonable buy at these levels.
On the date of publication, Joseph Nograles did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
