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Why AMC Entertainment Stock Dropped 9% Today

By Reuben Gregg Brewer – Oct 26, 2020 at 2:08PM

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The movie theater operator's stock fell sharply, but this time it wasn't company-specific news that drove the decline.

What happened

Shares of movie chain owner AMC Entertainment (AMC) fell throughout morning trading, hitting a drop of roughly 9% at 1 p.m. EDT. The broader market was selling off, too, with the S&P 500 Index down by roughly 2.5% at 1 p.m. The drops were correlated.

So what

Over the last couple of weeks, AMC has gone through some harrowing ups and downs. These were often driven by company- and industry-specific news. For example, in an SEC filing, the company noted that it could run out of cash by year-end 2020 or in early 2021. Not surprisingly, the stock sold off. On the other side of the coin, New York State allowed movie theaters to reopen. New York is a key movie market, so investors were bullish on the news. The recent ups and downs here have been quite large at times.

Young people sitting in a movie theater and enjoying the movie.

Image source: Getty Images.

Today, however, the story was bigger picture in nature. The United States is seeing a resurgence of COVID-19 cases, hitting levels last seen during July. At this point, there has been a material uptick since early September. The surge isn't confined to the U.S. market, either, with many foreign countries enacting partial economic shutdowns in an attempt to slow the spread. Thus, there are two fears likely driving AMC's stock today. First, the U.S. might end up following other countries and attempt some form of partial economic shutdown. That would likely lead to reduced attendance if not outright theater closures. Second, even if theaters remain open, rising COVID-19 cases might lead customers to socially distance at home when they might have otherwise gone to the movies. That, of course, would mean reduced attendance. Basically, investors view COVID-19 picking up again as a bad omen for AMC. That's probably not a bad call.  

Now what

Only aggressive investors should be looking at AMC stock today. There are a great many uncertainties, and there's very little the movie theater operator can do about the headwinds it's facing. Even Wall Street analysts are taking a very dim view of the company's prospects. The world simply needs to get a better handle on the coronavirus before AMC can even consider a return to normal operation. While there's probably massive recovery potential here, that will only be realized if AMC can survive this crisis. That's a far from certain outcome at this point.   

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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