Like a movie that doesn't live up to the trailer, the hype for AMC Entertainment Holdings (NYSE:AMC) is never as good as the reality. Shares of the multiplex operator soared 51% on Monday, and at one point were trading as much as 76% higher. News of a feasible vaccine rounding the corner into the final phase of regulatory approval helped prop many of the out-of-favor consumer stocks higher, but few matched AMC Entertainment's bounce.
The gains didn't last. Back-to-back slides on Tuesday and Wednesday find the stock of the country's leading movie theater operator surrendering half of Monday's gains. Just as we've seen this year, any catalyst that moves AMC higher seems to be quickly undone a few days later. Poor AMC shareholders can't seem to catch a break.
AMC shares have shed more than half of their value in 2020, and on Wednesday the stock closed 60% below where it was when it peaked just two months earlier. Every step up seems to be countered with at least two steps down.
The stock popped in August when AMC began reopening its theaters across the country in locations where screenings are allowed according to local guidelines. The rally fizzled when initial attendance numbers were abysmal.
The stock surged in September when Tenet stuck to its commitment for a theatrical release. The shares sputtered when the only legitimate summer blockbuster flopped at the box office.
Any increase that happens as theaters open in new markets is quickly outdone by the grim reality of the new normal. Folks don't feel safe in theaters. The convenience of streaming movies from home with mask-free comfort is something multiplex operators can't match. The final dagger -- of course -- is that nearly every promising movie that was supposed to hit theaters since mid-March has either pushed out its release window into 2021 or has just pivoted to a premium-priced streaming debut.
This doesn't mean that AMC isn't doing some things right. Unlike rival Regal, which just threw in the towel by closing down its theaters, AMC is still keeping its multiplexes open. The media stocks that control the leading movie studios will never regain confidence in theatrical distribution if the two largest exhibitors in the country freeze operations.
The move earlier this month to actively promote private rentals is also brilliant. AMC now lets folks pay as little as $99 and as much as $349 to rent out an entire screening for as many as 20 invited guests. It helps silence some of the safety and mask-wearing concerns. It also helps with the high-margin concession stand sales that have been sorely lacking in the new normal since safety concerns are keeping the nibbling and sipping to a minimum in a theater with strangers.
Things won't necessarily end well for AMC Entertainment, even if I did offer it up as a potential winner in 2021. A lot of the setbacks have been out of AMC's control, but one thing that it has done that nips any potential rally short is issue new stock when the shares spike higher.
AMC Entertainment is hungry for cash, something that is understandable given its limited liquidity and voracious cash burn rate. Within hours of the stock surging on Monday's favorable vaccine news it filed to sell 20 million more shares. Obviously you want to sell shares when your stock is moving higher, but all of the stock and debt sales come at a price. There is no free lunch -- or in this case no free popcorn tub -- at Wall Street's concessions stand.
AMC began the year with 52 million Class A shares, and that number will have more than doubled to more than 108 million shares by the time this week's offering has been completed. There are another nearly 52 million Class B shares with enhanced voting rights owned by China's Wanda Group, but we're still talking about a more than 50% increase in outstanding shares after a couple of secondary stock offerings in 2020. Put another way, a $4 stock today has the same market cap as the stock at $6 before the pandemic crisis. It gets worse. Long-term debt has also shot higher as the year has played out. It's going to be a long way back for AMC even after it gets audiences back in seats and movie studios back in its digital projection rooms.