What happened
Shares of movie theater operator AMC Entertainment Holdings (AMC 9.56%) have been on a tear, rising another 23% in early trading on Nov. 24. Since the start of November, the stock has roughly doubled, including today's gain. This is all about investor sentiment, since not much has changed at the company.
So what
In 2020 the big story for AMC and its movie theater peers is obviously the coronavirus. Efforts to contain the spreading pandemic have involved shutting down movie houses and, even now that locations are reopening, occupancy is limited and cleaning costs have risen. This is terrible news for AMC, which reported an attendance decline of more than 90% in the third quarter. Worse, movie makers remain reluctant to release new flicks while moviegoers are wary of venturing out of their homes.
Image source: Getty Images.
However, in each of the last three weeks there has been positive news on the coronavirus vaccine front. The latest update was on Nov. 23 from AstraZeneca. Investors are starting to believe that the coronavirus can be defeated and that the world will get back to normal at some point in the not too distant future. That's lifted consumer discretionary stocks like AMC. Easing political tensions in the United States are likely helping as well. The only problem is that a vaccine has yet to get final approval and even when one does it needs to be widely distributed before economic activity is likely to return to more normal levels. In the meantime, AMC is going to keep struggling to attract customers. And the current uptick in COVID-19 cases won't help that any.
Now what
It wasn't too long ago that AMC warned it could run out of cash by the end of 2020 or in early 2021. It is working to resolve that issue, but it is highly uncertain whether or not a vaccine will arrive in time to make that process materially easier. In other words, AMC remains a high-risk turnaround stock that most investors would probably be best off avoiding. Indeed, investor enthusiasm, which is often transitory, might be getting a little too far ahead of reality.
