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Why AMC Entertainment Stock Was Slipping Today

By Jeremy Bowman – Oct 15, 2020 at 6:56PM

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The sell-off continued as the future looks bleak for the movie-theater operator.

What happened

Shares of AMC Entertainment (AMC 1.30%) were sliding today for the third day in a row, as fears of a potential bankruptcy and a collapse of the movie-theater industry continued to weigh on the stock. Though there were no new updates on the company, its announcement earlier this week that it could run out of cash by the end of the year, and the decision by Regal-parent Cineworld to close down all of its theaters temporarily, continued to pressure the stock.

Meanwhile, a downbeat initial unemployment-claims report and fading hopes for another stimulus package pushed stocks lower and also dimmed the economic picture for AMC, and rising coronavirus cases across much of the country could even force it to close theaters again. The stock closed the session down 6.4%.

The entrance to an AMC multiplex

Image source: AMC Entertainment.

So what

The world's largest movie-theater operator began reopening its facilities in August, but the recovery in business has been weak. AMC said that through Oct. 9, same-theater attendance has been down 85%. Though that may be primarily due to capacity limits at theaters, it underscores the challenges the company faces in mounting a comeback. At a certain point, it's more expensive to operate a theater with low attendance than to shut down the business.

Additionally, the company acknowledged that major movie releases that were being scheduled for the fourth quarter are being delayed until 2021 or redirected to streaming channels, as studios accept the realities of the pandemic.

Finally, coronavirus cases have reached levels not seen since August in the U.S., and health authorities are worried that cases will continue to rise, especially as the weather gets colder. In Europe, the company's second-biggest market, some countries have already reimposed lockdown measures.

Now what

AMC shares are down nearly a third this week, but the entertainment stock could have further to fall, as this remains one of the businesses most threatened by the COVID-19 pandemic. Not only do theaters need customers to be willing to come back, but they also need buy-in from studios, which don't want to screen big-budget movies for empty auditoriums.

With coronavirus cases rising and no end to the pandemic in sight, there could be more tough times ahead for AMC.

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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Stocks Mentioned

AMC Entertainment Holdings Stock Quote
AMC Entertainment Holdings
$7.42 (1.30%) $0.10
Cineworld Group plc Stock Quote
Cineworld Group plc
$0.05 (-1.05%) $0.00

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