Back in September, we took a look at AMC Entertainment (NYSE:AMC) and suggested running for the exits thanks to a stock surge that hit at the time. It was certainly a good plan, as the company's stock shed around a third of its value, going down to its current level of $4.65 a share. With pre-market trading dropping the share price down to $4.38, reports note, staying out of AMC might be a good plan going forward, unless you're up for a bit of risk.
A Major Competitor Exits the Market, At Least for Now
The biggest news that hit the field isn't all that related to AMC, but rather to one of its biggest competitors, Regal Cinemas. Its parent company Cineworld (LON:CINE) announced that not only would all Cineworld locations in the UK be closed, but also all Regal Cinemas locations in the US would do likewise. The news came after reports that the latest James Bond release, “No Time to Die”, would be shifted back to next April instead of its original release date of November.
This effectively left just two major releases left for 2020, “Dune” and “Wonder Woman 1984,” both from Warner Brothers and both likely to end up postponed themselves at the rate things are going. The closure of both Cineworld and Regal means a cumulative total of around 33,500 jobs lost, with the bulk—around 28,000—hitting the US. There's no real word on reopening plans, but current projections suggest that it's a minimum of “sometime in 2021” away. In what may be the unkindest cut, the reports suggest that not only were employees not consulted, they weren't actually informed of the likely cuts, finding out about the possibility of job losses direct from the media.
Things Aren't Great at AMC Either
Meanwhile, the picture at AMC—and part of what's been sending its stock price sliding downward for the last month—isn't much better. New reports emerged recently to suggest that the company has about six months of liquidity left to it, and after that, the company is straight-up broke. When the largest theater chain on the planet is looking at six months to destitution, you know there's little good news ahead.
Except, in this case, there may be a silver lining. The news on the surface is obviously bad; not only did we find that the company has effectively six months to live barring some kind of intervention, we also found that S&P downgraded the company's debt rating, dropping it from CCC+ to CCC-. Worse, the downgrade comes with the slimmest of potential for recovery, as S&P noted that disaster was likely to strike without “...unanticipated significantly favorable changes in the issuer's circumstances.”
A Risky Shot at Recovery Possible
So what in the world would make anyone want to buy in on this? AMC stock now, effectively, becomes a contrarian play, with plenty of analysts screaming sell. The company's stock hasn't been this low since the massive sell-off event back in March and into April. Our own research, meanwhile, notes that AMC is currently at a hold, as it was 30 days ago, with four “sell” ratings, eight “hold” ratings, and one “buy” rating. That's a little worse than it was 90 days ago, when there were two “buy” ratings, and quite a bit worse than six months ago, when there were three “sell,” seven “hold” and four “buy.”
If there's any kind of recovery in the near term, AMC is in the perfect place to pursue it. With Regal / Cineworld out of the picture for the foreseeable future, and signs emerging that theaters are starting to open back up even on the contested coasts, there's a possibility of recovery afoot. However, this is only a possibility; the biggest problem for theaters remains the same as it was six months ago, even six years ago. Theaters have only two major advantages over the home theater market: the “theater experience,” which is that wholly unquantifiable feeling theatergoers get from actually going to the movies, whether as part of a group or on their own, and the fact that theaters still get first-mover advantage on the latest titles.
The problem here is that there really isn't much in the way of “latest titles” to be had. As movie studios set up a vicious cycle, in which theaters get minimal traffic because there's nothing to show, and studios won't make anything available to show until theater traffic improves, the likelihood of the ultimate loss of the movie theater is wholly possible. Theaters are currently petitioning the government for bailouts, much the same way the airlines did, reports note, but how much stomach there is in Washington for bailing out movie theater chains is uncertain.
With AMC trading at lows not seen since the pandemic, it's still a contrarian play. Taking out a 100-share flier in AMC stock will cost less than a new LED television in many places, so for anyone inclined to take a risk that something will turn around in the theaters, it's a good time to pick up AMC. It will be, however, a fairly risky proposition.
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