The coronavirus pandemic devastated AMC Entertainment Group's (AMC -3.25%) business. At the onset, it had to shut its doors to moviegoers for months. To earn revenue, the company brings together large groups of people to watch a movie indoors -- the kind of activity that could encourage the spread of COVID-19.
Thankfully, close to six billion doses the COVID-19 vaccine have been administered to people. And fortunately, the vaccines have the desired effect -- bringing down the number of coronavirus infections. That's good news for AMC because with more people vaccinated and more minor infections, folks will be more likely to visit a theater to watch a movie.
Image source: Getty Images.
Recovering one step at a time
As a result of the temporary theater closures, AMC's revenue in 2020 ($1.2 billion) was a far cry from the total in 2019 ($5.5 billion). Many of its costs like rent and interest expense are fixed, so it could not lower them to the degree of the fall in revenue. Management can be commended for doing everything in its power to keep the business afloat during the most challenging times in the company's history.
AMC is happy to welcome folks back to theaters, but the recovery is not happening fast enough. In its most recent quarter, the company reported revenue of $445 million while reporting a loss of $344 million on the bottom line. Moreover, AMC generated a loss of $234 million in cash from operations. The revenue figure was a remarkable improvement over the $19 million it earned in the same quarter last year.
Declining coronavirus cases are yet more good news for the movie theater chain, and it could be one reason why The Walt Disney Company chose to release the rest of its 2021 film slate exclusively in theaters. Until the announcement, the company was executing a mixed strategy of direct-to-streaming, simultaneous release, and exclusive theatrical releases.
Box-office results continue to improve as the year progresses. As of this writing, Marvel's Black Widow has totaled $183 million in the domestic box office, and Marvel's Shang-Chi and the Legend of the Ten Rings has already earned $178 million. The latter is poised to eclipse the former when their time on the big screen is finished. Still, while the figures are an improvement from last year, they are nowhere near the levels of several Marvel films released in the years before the outbreak.
What this could mean for investors
AMC's stock is far ahead of the business in pricing in a recovery. Indeed, AMC's stock price is up over 1,800% in 2021. The rise is attributable to a group of investors who collectively decided to buy and hold the stock in an attempt to induce a short squeeze. Those actions have all but divorced the company's stock price from fundamental factors resulting from its business operations.
Therefore, long-term investors interested in starting a position in AMC can put it on their list and wait for a substantial pullback in the price before buying.
