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Why AMC Entertainment Stock Dropped 10% This Morning

By Rich Smith – Jun 15, 2020 at 1:50PM

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Even movie theater owners don't want to buy more movie theaters in the age of coronavirus.

What happened

Shares of movie theater operator AMC Entertainment (AMC 9.08%) plunged 10% in early trading Monday before climbing back to something closer to a 4% loss as of 12:45 p.m. EDT.

Yet there does not appear to be any news out today directly concerning the company that would explain the sudden and dramatic plunge.

Darkened empty movie theater with floor littered with popcorn

Image source: Getty Images.

So what

What there is, however, is some news that indirectly affects the company. Over the weekend, a rising number of COVID-19 cases prompted the states of Utah and Oregon to halt planned reopenings of their economies.  

Other states are pressing on with ending their lockdowns, despite rising numbers of reported coronavirus infections. But there's a chance that their hands may be forced, and that the slow rollout of reopenings that has encouraged investors these past few weeks could begin to roll in reverse. If this happens, it could undermine AMC's plans to begin reopening its movie theaters in July, depriving the company of needed cash flow and pushing AMC closer to bankruptcy.  

Now what

How serious is this risk? Here's a clue: On Friday, Britain's Cineworld Group, which owns the Regal Entertainment chain of theaters in the U.S. and which started up a subscription movie service just last year, announced it is canceling a deal to acquire Canada's Cineplex. Cineworld blamed Cineplex's deteriorating business for its decision -- but of course, we all know that the reason why Cineplex's business is so weak is the coronavirus pandemic. Cineworld's decision to pull out suggests it has little faith that conditions will improve anytime soon.  

That deal, had it gone through, would have catapulted Cineworld past AMC to take first place as the biggest movie theater chain in North America. The problem is, with coronavirus cases in United States apparently on the rise again, having the greatest exposure to the U.S. and Canada may not necessarily be such a good thing for Cineworld.  

Logically, therefore, it would also be less than a good thing for AMC to remain No. 1 in this market.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

AMC Entertainment Holdings, Inc. Stock Quote
AMC Entertainment Holdings, Inc.
AMC
$7.45 (9.08%) $0.62
CIneplex Stock Quote
CIneplex
CPXG.F
$6.49 (-1.77%) $0.12
Cineworld Group plc Stock Quote
Cineworld Group plc
CNNW.F
$0.03 (-12.42%) $0.00

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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