Don’t Take AMC Stock Off Your List; It’s Not Dead Yet
The coronavirus pandemic has had a devastating impact on entertainment stocks. Specifically, AMC Entertainment (NYSE: AMC), the country’s largest multiplex operator has been struggling to stay operational when social distancing measures came into place. The cinema operator was on the verge of bankruptcy in recent weeks. As a result, AMC stock took a dive in the stock market and traded at lows of below $2 per share. There’s no question that the coronavirus pandemic has put the company in a difficult position financially. Investors are well aware of that. The company is not only facing sudden and massive losses in revenue. But the rise of movie streaming has added fuel to the fire.
AMC stock spiked higher in the past week and skyrocketed higher on Monday. This came after AMC announced that it has raised $917 million through new debt and equity in the past six weeks. Furthermore, the cinema operator also said that it expects to make progress in its ongoing talks with theatre landlords about the amounts and timing of owed theatre lease payments.
This is great news for the company as it’s able to buy some time to survive through the COVID-19 storm. Of course, that doesn’t mean the company is out of the woods yet. Investors still have to take note that if the COVID-19 situation doesn’t improve in the next year or two, things might go south again.
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New Financing Steer Clear Of Near Term Uncertainties
With its balance sheet bolstered, the company believes that it has enough liquidity to keep its operation running until “deep into 2021”. “Today, the sun is shining on AMC. After securing more than $1 billion of cash between April and November of 2020, through equity and debt raises along with a modest amount of asset sales, we are proud to announce today that over the past six weeks AMC has raised an additional $917 million capital infusion to bolster and solidify our liquidity and financial position,” AMC CEO Adam Aron commented. “This means that any talk of an imminent bankruptcy for AMC is completely off the table.”
Now, if you were to look at the price action of AMC stock since the start of the year, you might think that everything is sunny and the company is poised for another big rally. You might even be tempted to buy into the rally. Even though investors are cheering on the announcement of new liquidity going into the company, investors must be wary of short-term hype.
If anything should send AMC stock higher, it could be higher revenue from the company’s movie theaters. That will likely come when the pandemic is under control, of course. Now, that’s not happening just yet. Patrons are still keeping their distance, and studios are withholding their best titles until conditions improve. As such, there isn’t a need to rush into the rally, really. I don’t know about you. But if I were to go to the cinema today, I would have really wanted to watch that movie so badly to take the risk.
Will A COVID-19 Vaccine Keep AMC Stock Afloat?
AMC needs the widespread rollout of coronavirus vaccines to pick up in pace. Right now, roughly 9% of the adult population have received at least the first dose of a COVID-19 vaccine. Once life slowly but surely begins to return to normal, things could start to turn around for AMC. President Joe Biden is hoping to get 100 million vaccine doses administered in his first 100 days in office. This would get the Americans another roughly 50 million completed vaccinations by the end of April.
After months of staying at home, movie fans will no doubt rush to return to theaters when the pandemic is over. Also, once Hollywood starts filming again, there may be a surge of new releases to keep audiences entertained. But the real question here is, can AMC persevere until that happens? Admittedly, AMC said that it can stay afloat into the second half of 2021. But we don’t know for sure when the impact of a vaccine rollout can translate into revenue dollars for the company.
“Looking ahead, for AMC to succeed over the medium term, we are going to need for much of the general public in the U.S. and abroad to be vaccinated,” Aron said. “To that end, we are grateful to the world’s medical communities for their heroic efforts to thwart the Covid virus. Similarly, we welcome the commitment by the new Biden administration and of other governments domestically and internationally to a broad-based vaccination program.“- Adam Aron, CEO of AMC Entertainments
Notwithstanding the delays in films, the company continues to open dozens of theaters this month with occupancy limits of 25%. It also mandated the wearing of face masks. While not having blockbusters is a problem, being closed for an extended period was even worse. As such, the company is trying to rent out a whole hall to groups. That is certainly a sign of adaptability.
It’s understandable to have confidence in a stock if there’s a valid reason. Even though these days, fundamentals may not be exactly what you need to see a stock flying. But when it comes to AMC stock, we should consider if optimism alone is all we need. Don’t get me wrong, there’s a great chance the company could pull through this crisis. But it also stands an equal chance of burning out all its money before the world could really return to normal. COVID-19 vaccine rollouts can be a complex matter with manufacturing and logistics to consider. What’s more, some continue to question the effectiveness of some vaccines. In my personal opinion, AMC stock is still very risky. That’s considering the company remains in a deep financial hole. Looking at its recent run-up in its stock price, I would need to take a deep breath before making any decision.