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Why AMC Entertainment Stock Was Sliding Today

By Jeremy Bowman – Jun 22, 2020 at 1:06PM

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Shares of the movie theater chain fell as new coronavirus cases increased over the weekend.

What happened

Shares of AMC Entertainment (AMC -6.39%) were moving in reverse today as the stock slid following a brief spike last Friday after the company announced it would reopen theaters in July. 

Though there was no specific news out on the company today, the stock was moving lower in tandem with other "gathering place" stocks as investors reacted to news of rising coronavirus cases across a number of states. AMC stock was down 3.9% as of 12:08 p.m. EDT.

The entrance to an AMC multiplex surrounded by palm trees

Image source: AMC.

So what

AMC shares rose last Friday after the company said theaters would reopen next month, but flip-flopped over its mask policy. The company initially said it wouldn't require masks and then, after receiving criticism, reversed course, saying it would. The controversy seemed to mar the reopening announcement.

Today, after a weekend that showed coronavirus cases continuing to hit record highs in states like Florida, Texas, California, and Arizona, investors backed away from stocks that are sensitive to the recovery and an increased rate of outbreaks. Apple said it would close down stores in four states in response to a resurgence of COVID-19 cases in Florida, Arizona, and the Carolinas. And President Donald Trump's first rally over the weekend since the pandemic started had much lower attendance than expected, which may be partly a result of fears about the virus.

For AMC, a resurgence of cases and renewed fears about the pandemic will keep at least some people away from movie theaters, making its reopening more difficult.

Now what

Adding to the company's woes is a weak balance sheet as it warned weeks ago that its ability to continue as a "going concern" was in jeopardy, essentially saying it could be forced into bankruptcy. As of the end of March, the company had $300 million in cash and $5 billion in debt.

Since then, AMC has been forced to take on more debt, paying a 10.5% interest for one $500 million loan, showing the company's difficult position as any borrowings will be costly.

A lot is riding on the reopening next month. If it doesn't go well, the stock could end up going to zero.

Jeremy Bowman 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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