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Why AMC Stock Soared Today

By Joe Tenebruso – Oct 19, 2020 at 2:41PM

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The movie theater chain is reopening its venues in a key market.

What happened

Shares of AMC Entertainment (AMC -0.60%) surged on Monday after the company said it plans to reopen its theaters in New York. As of 2:06 p.m. EDT, AMC's stock was up 20%. 

So what

AMC was forced to shutter its movie theaters during the early stages of the coronavirus pandemic. Stay-at-home orders and other social distancing measures enacted to slow the spread of COVID-19 have plagued the industry since then. With many of its theaters closed and those that are open operating at reduced capacity, AMC has burned through massive amounts of cash. The company lost a staggering $561 million in the second quarter. 

A movie marquee with the word "Open."

AMC's investors received some welcome news on Monday. Image source: Getty Images.

Against this backdrop, AMC's shares rallied after New York Governor Andrew Cuomo said theaters could begin to reopen in the state on Oct. 23. Although reopenings will not yet be allowed to take place in New York City, AMC's management sees it as an important step toward the industry's recovery. 

"It has become clear that movie studios are not willing to release blockbuster product until key major markets are open," AMC CEO Adam Aron said in a press release. "Therefore, it is a monumental step in the right direction for our entire industry that theatres are starting to open across the state of New York."

Now what

AMC isn't out of the danger zone yet. Even after its theaters reopen, many people may choose to watch movies in the safety of their own homes until the COVID crisis subsides. Moreover, content creators such as Disney have begun to release blockbuster movies directly to consumers via streaming services, bypassing AMC's theaters in the process. For all of these reasons, AMC's stock remains a risky bet.

Joe Tenebruso owns shares of Walt Disney. The Motley Fool owns shares of and recommends Walt Disney and recommends the following options: long January 2021 $60 calls on Walt Disney. The Motley Fool has a disclosure policy.

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