Shares of movie theater operator AMC Entertainment (NYSE:AMC) fell sharply at the open of trading on Nov. 2, dropping as much as 8% at one point in the first 30 minutes of trading. There are likely two reasons for the negative sentiment today, though it is worth noting that, by 10:30 a.m. EST or so, the shares had managed to pare the loss to 4%.
The first big news hasn't really happened yet, since the company won't release its third-quarter earnings until after the closing bell on Wall Street today. That said, given the still difficult environment in which AMC Entertainment is operating, investors are likely expecting pretty bad news.
In a recent SEC filing the company highlighted that, despite having roughly 87% of its theaters reopened following government mandated closures, revenue was still off by 85% year over year. While AMC Entertainment has been able to open some additional theaters since that update, notably in New York and California, third-quarter earnings are likely to be brutal reading.
The second piece of news out of the company today was reported in an SEC form S-3 noting that AMC Entertainment has registered to sell 20 million shares of stock. AMC Entertainment is heavily leveraged, so it's not surprising that it is looking to raise capital via a stock sale, even if that sale is dilutive to current shareholders. More important, given the historically low price of the stock, this decision is a really just a reminder of how dire the situation is at the company. Put this together with the pending release of quarterly earnings and it's no wonder investors were in a dour mood at the start of the day.
AMC Entertainment is struggling through a very difficult period. Although all of the problems it faces are not of its own making, that doesn't change the fact that it still has to deal with them. It is doing the best it can, but long-term investors are probably better off on the sidelines until there are some solid signs that a turnaround is starting to take shape. Indeed, it's probably appropriate to be at least a little fearful here.