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Why Shares of Movie Theaters and Indoor Entertainment Centers Rallied on Tuesday

By Lou Whiteman – Aug 11, 2020 at 4:43PM

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Investors cheered headlines about a potential vaccine.

What happened

COVID-19 has hit indoor entertainment stocks hard, by keeping large crowds from gathering in tight quarters. But Tuesday brought positive news about a potential vaccine and gave a lift to a lot of beaten-down shares.

Shares of theater chains Cinemark Holdings (CNK -4.68%) and AMC Entertainment Holdings (AMC -10.37%) traded up as much as 13% and 8.5%, respectively, while shares of Dave & Buster's Entertainment (PLAY -7.43%) were up 12% at one point on Tuesday.

The stocks are all underperforming the S&P 500 for the year, but at least on Tuesday they are heading in the right direction.

^SPX Chart

Cinemark, AMC, and Dave & Buster's data by YCharts

So what

Movie theaters and entertainment centers have mostly been closed since the early days of the pandemic, leaving companies like Dave & Buster's scrambling to raise cash to weather the storm and making AMC and others unsure about when they'll be able to reopen.

There's only so much management teams can do to counter a pandemic. For the businesses to recover, there needs to be a vaccine.

Skee ball set up at an entertainment center.

Image source: Getty Images.

The stocks were up on Tuesday after Russia became the first country to grant regulatory approval to a coronavirus vaccine. The vaccine still needs to complete final trials, but Russian President Vladimir Putin expressed confidence it would be in production before year's end.

Now what

It's hard to know what to make of the news out of Russia. From reports, it appears the vaccine was approved before a large-scale phase 3 trial. The timing of the announcement appears at least partially driven by a desire to stir nationalistic pride, with the Russians planning to market the vaccine internationally under the name Sputnik.

But even if the vaccine is a success, there are several other vaccine candidates nearly in phase 3 trials. It's unclear whether the Russian vaccine really pushes the timetable forward.

We're still on a path toward a likely vaccine approval before year's end, at which time mass production will begin. It is likely to be well into the first quarter of 2021, at the earliest, before it's generally available and a sufficient portion of the population is protected.

Until that time, it's hard to imagine we'll see big crowds gathering in indoor locations. And that's tough news for investors in companies that rely on crowds that gather indoors.

We're moving in the right direction, but investors in these movie and entertainment stocks need to be careful not to get ahead of themselves.

Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool recommends Dave & Buster's Entertainment. The Motley Fool has a disclosure policy.

Stocks Mentioned

Cinemark Holdings Stock Quote
Cinemark Holdings
$12.02 (-4.68%) $0.59
AMC Entertainment Stock Quote
AMC Entertainment
$6.05 (-10.37%) $0.70
Dave & Buster's Entertainment Stock Quote
Dave & Buster's Entertainment
$33.51 (-7.43%) $-2.69

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

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