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Why AMC Entertainment Stock Jumped 27% in Early Trading on Sept. 2

By Reuben Gregg Brewer – Sep 2, 2020 at 10:32AM

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As business slowly gets back to normal, investors have updated their view of theater-operator AMC. Is "better" enough?

What happened

Shares of movie-theatre operator AMC Entertainment (AMC -1.70%) rose a dramatic 27% at the start of trading on Sept. 2. By 10 a.m. EDT, the stock had given back a lot of that gain but was still higher by roughly 15%.

Following the advance, AMC is nearly back to breakeven for the year, which is an incredible improvement given that the shares were down around 70% at one point during the early 2020 bear market. The reason for the day's jump was an update on the company's reopening plan, which deserves closer scrutiny. 

So what

AMC's revenues plummeted when non-essential businesses, like movie theaters, were shut in an attempt to slow the spread of COVID-19. That's not shocking, given AMC's purpose is specifically to bring strangers into close proximity to each other for roughly two hours at a time so they can watch a movie.

That's a situation in which the coronavirus can easily spread. However, at this point, the company has begun to reopen its theaters, and investors are clearly becoming more positive about the future. 

People sitting in a movie theater

Image source: Getty Images.

The big boost today was related to an after-the-market news release on Sept. 1 that stated AMC would have 70% of its locations open in time for the upcoming holiday weekend. The list notably includes the first reopenings in California.

Investors were clearly pleased by the progress AMC is making in returning its operations to some semblance of normalcy. More openings are on the way, as well, according to the company. Meanwhile, the company is offering cheap tickets and discounted food as an enticement for consumers to see the first slate of big movies to be released after months of COVID-19-related lockdowns. 

Now what

The fly in the ointment here is that the news release, in highlighting the progress being made, also points out that business is still nowhere near back to normal for AMC. That includes the fact that 30% of its locations remain shuttered and the need for enhanced cleaning efforts (which increase costs) and social-distancing guidelines (which will likely reduce revenues).

Even when 100% of AMC's theaters are up and running, it will still have to deal with the impact of COVID-19. And yet, a lot of good news has been priced in at this point, as the stock is trading near its pre-COVID-19 levels. Long-term investors should probably consider if the fundamentals back up the price recovery that's taken place.

Reuben Gregg Brewer 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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