What happened
Shares of movie theater operator AMC Entertainment Holdings (AMC -3.25%) fell just shy of 7% in the first half hour of trading on Thursday. Taking that drop into consideration, the stock is now down roughly 30% from the highs it reached on Nov. 9 when Pfizer and BioNTech announced very positive results from their coronavirus vaccine efforts. There's nothing shocking going on with AMC's stock; reality is just setting in.
So what
At one point on Monday, AMC's stock had rocketed higher by more than 70%. Wall Street, which has a bad habit of going to extremes, basically decided that the companies worst hit by COVID-19 headwinds were suddenly worth buying. After all, the Pfizer update was an indication that a vaccine must be right around the corner...
Image source: Getty Images.
The only problem with that story is that Pfizer didn't really say its vaccine was right around the corner. In fact, it still needs to get the vaccine approved. And then it needs to be produced in large quantities and distributed widely before it's likely to have a material beneficial impact on AMC's business.
In other words, getting from the Monday update to AMC's theaters operating at pre-pandemic levels is going to take time -- perhaps a lot of time. Meanwhile, AMC still faces mandated capacity constraints, extra cleaning costs, movie makers' reluctance to release new films, and (worst of all) customers reluctant to go out for movie night. And then there's the company's heavy debt load.
Now what
Investors probably got too excited on Monday. In fact, AMC's stock drop since that point is a clear indication of that. The unfortunate truth is that, with COVID-19 cases on the rise again, this movie theater operator is nowhere near being out of the woods yet. Long-term investors should probably stay on the sidelines until there are clearer signs of a business recovery.
