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Why AMC Entertainment Stock Was Climbing on Tuesday

By Jon Quast – Updated Jul 28, 2020 at 2:37PM

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A big-budget film is set for release soon, suggesting the movie industry is prepping for a comeback.

What happened

Shares of AMC Entertainment Holdings (AMC 6.79%) were rising on Tuesday despite a lack of news about the company. But it's possible investors are encouraged by a single data point suggesting the theater industry is starting to return to normal: The movie Tenet is coming to theaters this fall. As of 2:30 p.m. EDT today, AMC stock was up 9% and still climbing.

A hand plots an arrow higher on a graph with a pen.

Image source: Getty Images.

So what

As people physically distanced themselves to prevent the spread of COVID-19, certain venues were off-limits, including movie theaters. And it created a tricky problem: Movie theaters can't reopen if new movies aren't being released, and movie studios aren't interested in releasing their films if there aren't a good number of theaters reopen.

Furthermore, if the coronavirus worsens and causes distancing guidelines to become strict again, it could be devastating for big-budget films. Consider what happened with Disney's Onward. It was the worst-performing Pixar film ever at the box office. Nevertheless, movie critics and audiences alike loved it, based on its score from Rotten Tomatoes. Movie theaters closed days after the film's release, limiting ticket sales. Otherwise, it likely would have been a smashing box-office success.

This is a big risk for a studio right now; it could eat an enormous loss if it releases a film before a second wave of shutdowns. And until one studio takes the risk, AMC doesn't have movies to show. That could soon change. Warner Bros. Studios, owned by AT&T subsidiary WarnerMedia, just announced Tenet will be released in international markets on Aug. 26 and in select U.S. markets on Sept. 3.

Tenet has high expectations. Its production budget was reportedly over $200 million. 

Now what

Any hope of a recovering box office is encouraging news for AMC investors. The company's first-quarter revenue was "only" down 22% year over year. But Q1 included relatively little damage from COVID-19. The next quarterly report will look far worse. In the meantime, the company is doing all it can to reduce its cash burn. But AMC needs the movie industry and consumer-discretionary spending to get back on track as soon as possible. 

Jon Quast has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Walt Disney and recommends the following options: long January 2021 $60 calls on Walt Disney and short October 2020 $125 calls on Walt Disney. The Motley Fool has a disclosure policy.

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