Please ensure Javascript is enabled for purposes of website accessibility

Here's Why AMC Entertainment and Other Movie Theater Stocks Are Plunging on Monday

By Matthew Frankel, CFP® – Updated Oct 5, 2020 at 11:04AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The troubled industry got yet another dose of bad news over the weekend.

What happened

The stock market was having a pretty strong day on Monday morning as investors seemed quite optimistic about President Trump's recovery from COVID-19, as well as the possibility that a new stimulus deal will be reached. As of 10 a.m. EDT today, all major market averages were in the green, with the S&P 500 higher by 0.9%.

But movie theater stocks were a major underperformer. Leading U.S. movie theater operator AMC Entertainment Holdings (AMC -2.69%) was down by more than 11% for the day on the heels of a large decline in September, and Cinemark Holdings (CNK 1.26%) was lower by 12%. And real estate investment trusts that own movie theater properties were also under pressure. EPR Properties (EPR 2.06%), which derives 45% of its rental income from theaters, was lower by nearly 10%.

Young woman in movie theater with mask on.

Image source: Getty Images.

So what

The simple answer is that movie theaters are under pressure after Cineworld Group (CINE 2.35%), parent company of Regal Cinemas, announced that it plans to suspend operations at all of its U.S. and U.K. movie theaters less than two months after reopening.

Simply put, there aren't very many movies for theaters to show right now. So, while most movie theaters can open, and many have taken precautions to keep customers safe, movie theaters need a product to sell, just like any other business. And most theaters can open, but those in some of the largest markets (particularly New York City and San Francisco) have yet to receive the green light.

Major film releases continue to be pushed well into the future, with the recent announcement that the newest James Bond film, No Time to Die, would be postponed until April 2021 being the last straw for Cineworld. This followed other major delays, such as Wonder Woman 1984 being moved from October to Christmas Day and Walt Disney (DIS 3.36%) delaying its much-anticipated Black Widow by six months. As Cineworld CEO Mooky Greidinger said: "We are like a grocery shop that doesn't have vegetables, fruit, meat. We cannot operate for a long time without product."

Now what

To be perfectly clear, AMC and other major theater chains have not announced any plan to close. And it's also worth mentioning that while AMC isn't in the best financial position, the company has taken steps to increase liquidity, including a debt restructuring and a favorable lease restructuring with major landlord EPR Properties (which, by the way, has years of liquidity to ride out the pandemic).

If we've seen the last of the major delays, AMC and other operators should be OK. The Christmas Day release of the new Wonder Woman movie should be a major positive catalyst for the U.S. movie industry if it is released on time. But if widely anticipated titles like those mentioned here continue to be delayed, there's a limited amount of time that theaters can operate with no "product" to sell.

Matthew Frankel, CFP owns shares of EPR Properties and Walt Disney. The Motley Fool owns shares of and recommends EPR Properties and 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.

Invest Smarter with The Motley Fool

Join Nearly 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Walt Disney Stock Quote
Walt Disney
DIS
$97.87 (3.36%) $3.18
Cinemark Holdings Stock Quote
Cinemark Holdings
CNK
$13.61 (1.26%) $0.17
Epr Properties Stock Quote
Epr Properties
EPR
$41.61 (2.06%) $0.84
AMC Entertainment Holdings Stock Quote
AMC Entertainment Holdings
AMC
$7.23 (-2.69%) $0.20
Cineworld Group Stock Quote
Cineworld Group
CINE
$4.80 (2.35%) $0.11

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

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
349%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/01/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.