If AMC Entertainment Holdings (AMC +8.74%) investors ever get a biopic of the 2021 ownership experience, there's a good chance M. Night Shyamalan will be directing. Like many of his recent flicks, AMC stock got off to a strong start, but after throwing folks a few curves, it can't seem to stick the landing.
AMC was one of the market's hottest stocks through the first few months of this year, but the shares have fallen 62% since peaking in June. How did we get here? Why are some believers clinging to gravity-defying conspiracy theories? Is there still time for a Hollywood ending? Let's go over some of the reasons AMC has failed to live up to the hype.
Image source: Getty Images.
1. We're not going back to the movies
Let's start with consumer interest in the product. There have been rare glimmers of hope for exhibitors -- like when Shang-Chi and the Legend of the Ten Rings broke the Labor Day weekend multiplex record -- but the success always proves fleeting. We're nowhere close to where we were before the pandemic, and even then the trend was going the wrong way.
The $42.7 million in estimated domestic ticket sales this past weekend isn't just the multiplex industry's second worst performance over the past five months. This is a sobering 64% below the box office receipts collected from the same weekend in 2019. Steven Spielberg's West Side Story was a jarring dud, but we've seen too many well-reviewed flicks fall flat in their theatrical screenings.
2. The wrong side is getting squeezed
A hashtag that has grown popular on the socials among AMC fans is that the mother of all short squeezes is coming. You wouldn't know it from sizing up the updated metrics on short interest that the exchanges put out twice a month. The 16.2% of AMC shares sold short right now is a four-month low in short interest.
Some bulls argue that the numbers aren't real. They point to the existence of synthetic shares or naked shorts understating the number of people betting against AMC. It doesn't seem to matter that AMC's own CEO posted that there is no evidence to these claims.
As to the existence of so-called fake or synthetic shares, or the naked short selling of AMC shares, we are unaware of any information validating these theories. Also, we are unable to make any comment on the considerable trading of puts/calls derivatives.
— Adam Aron (@CEOAdam) July 30, 2021
No matter where you stand on the debate of fake shares or naked shorts, the stock is down 62% since the all-time highs it hit six months ago. The stock is down 26% since CEO Adam Aron attempted to temper the conspiracy theorists. Is a company that would have to nearly triple in value to return to its earlier highs more likely to send bears covering their shorts or bulls cashing out to cover margin calls?
3. Executives are selling shares
The folks who know AMC the best are cashing out of a good chunk of their shares despite the sharp slide in the stock over the past six months. AMC's CFO cashed out of all of his vested shares. Aron has been selling stock for more than a month.
They both stand to receive more vested shares in the future, but it's not a good look when the stock is falling. They wouldn't be selling if they thought the mother of all short squeezes was coming.
4. Financial uncertainty will take some time to clear
Analysts think AMC is at least three years away from posting profits on an annual basis. Those same Wall Street pros see it taking that long to get revenue back to where it was before the pandemic.
The timeline can be shaved if things improve dramatically in the coming quarters, and AMC is doing a few things right to increase its chances to gain market share. It's galvanizing its shareholders. It's milking more out of its shrinking audiences by pushing premium-priced screen rentals and boosting concession stand sales through mobile ordering.
The other side of the coin is that those same Wall Street targets can be extended, if not upended. If folks spoiled by the convenience of streaming from home show no intention of returning to theaters, movie studios will continue to work on shorter windows of theatrical exclusivity or remove them entirely. Everybody is going to follow the money.
AMC is the top dog among movie theater stocks, and the ending has yet to be written. Do I see dread people? Or is it dead presidents? The stock is out of favor now, but Shyamalan has yet to offer up a signature twist.
