One of this young year's wildest stocks is AMC Entertainment Holdings (AMC 10.16%). The fundamentally reeling multiplex operator saw its shares more than quadruple in a single trading day two weeks ago, only to give most of those upticks back.
The country's largest multiplex operator is doing the work to stay alive, but there are a lot of things working against AMC. Let's go over some of the reasons a stock that has plummeted by 66% since its Jan. 27 peak can still go lower in the weeks to come.
1. AMC shouldn't be worth more than it was a year ago
Pull up a stock quote on AMC, and you might question my claim that the shares are being valued higher than they were a year ago. The stock began 2020 at $7.20, and it begins this new trading week 5% below that at $6.83.
Unfortunately, a stock's perceived value is more than just a number. AMC has had to issue a lot of new stock and even more debt to keep up with its current cash-burning ways. AMC's enterprise value was $10.9 billion at the end of 2019. It's up to $13.2 billion right now based on its current stock price, and that's using the balance sheet and shares outstanding info from the end of September. With all of the money AMC has raised in the past four months, the enterprise value is likely well above $15 billion right now. AMC wasn't in great shape coming out of 2019, but there's no way it should be worth more now than it was back then when nobody knew the pandemic was coming.
2. Folks aren't going to the movies
Most AMC theaters in the U.S. are now open. It was operating 438 of its 593 domestic theaters -- 74% -- as of Jan. 21. Attendance still plummeted 92% in the fourth quarter.
AMC will say that it's offering limited seating capacities and shorter operating hours, but the latter is a reflection of weak demand. Even with its closest rival Regal shuttering all of its theaters in early October, no one has ever had a problem scoring a socially distanced seat at the local AMC.
Even the bulls get this. Who wants to be wearing a mask in even a near-empty theater? Movie studios are either pushing out releases or going directly to consumers, cutting out the multiplex middleman. This wouldn't be a problem for AMC if it was a temporary state instead of an actual trend, but what if folks enjoy viewing new releases from home? What if the media companies like dealing directly with the viewer?
That brings us to the final nail in AMC's coffin.
3. Folks aren't coming back to the movies
Nobody opens in theaters on April 2. You know who is going to see it? That's right. Nobody. There may be a light at the end of the COVID-19 tunnel, but your local movie house can't go back in time. High-def TVs keep getting cheaper. The quantity and quality of content available to stream at home is improving exponentially.
Let's talk numbers. Movie theaters reopened in August across the country. Here is how box office receipts have clocked in every single month after that when pitted against the same period a year before.
- September: down 88.2%.
- October: down 92.3%.
- November: down 93.6%.
- December: down 94.7%.
- January: down 93.4%.
It's not encouraging to see that the best month theaters had since reopening was the first full month of availability. Instead of wooing movie patrons over time, the industry is losing them. We're now two months into the vaccination process, and it hasn't created a dinner bell for the projecting room.
Bulls will argue that folks will flock back to AMC's box office when the blockbusters arrive, but popcorn-popping patrons didn't show up when two of the biggest movies of 2020 started rolling. Less than 2% of the country has seen Wonder Woman 1984 on the big screen. Everybody else streamed it on HBO Max. Less than 2% of the country saw Tenet at a multiplex, and there was no other legal option to catch that flick until it hit the home video market three months later.
AMC will continue to burn through money. It will dilute shareholders with new stock and debt offerings until it runs out of people willing to take chances on a fading platform in a different world that awaits the entertainment industry at the other end of the pandemic. If you think the past seven trading days have been painful, just wait until the next seven months play out for a company that isn't likely be around seven years from now.
This article represents the opinion of the writer, who may disagree with the "official" recommendation position of a Motley Fool premium advisory service. We're motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.