The past two months have been quiet at the local multiplex. At the start of this third quarter, AMC Entertainment Holdings' (AMC -3.25%) box office receipts were looking promising, but since then, they've faded fast. And unfortunately for shareholders, that's not the only thing that hasn't been going AMC's way.
The country's leading movie theater chain has whiffed with big strategic moves. Its decisions to invest in a fledgling gold miner and distribute preferred shares to its investors have failed to sustain their initial hype. Like a studio after a string of duds, AMC itself is in real need of a hit. Thankfully for the exhibitor and its millions of retail investors, help could be on the way.
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Kernels of optimism
Before considering the catalysts that could potentially get AMC stock back on track, let's review some of the company's recent moves that have thus far failed to do so. Everything that management has been touching lately hasn't exactly turned to gold -- and that includes touching actual gold.
The theater operator turned heads in March when it announced that it had invested $27.9 million to purchase a 22% stake in tiny Hycroft Mining (HYMC -3.11%). The deal also included an equal amount of shares in warrants exercisable at a price of $1.07 a share. AMC investors initially applauded the move, and the market briefly sent shares of the cash-strapped gold and silver miner above $3 on the second trading day following the announcement. But the market's enthusiasm for this unusual pairing has since dissipated. Hycroft closed at $0.64 on Wednesday, well below the warrant exercise price.
AMC's move to create and distribute units of AMC Preferred Equity (APE) has also failed to generate sustained excitement within the investing community. Initially, some retail investors were hoping that the unusual stock dividend would smoke out holders of fake or synthetic shares. AMC itself saw the vehicle as a way to raise money despite the dilutive ramifications. But for investors, AMC Preferred Equity has been a dud -- the shares have lost roughly half their value. The new units have the same economic and voting rights as the original common shares, but are trading at a 56% discount to them. The market isn't buying it -- literally or figuratively.
Then there's the recent lull in action at the box office. Ticket sales across all domestic theater operators have failed to top $100 million for nine consecutive weekends. You would have to go all the way back to 1987 to find a worse pre-pandemic third quarter for the industry. The current scarcity of hit movies that could lure audiences back to the multiplex is, obviously, beyond AMC's control -- but the situation still stings.
Catalysts? There are some potential winners in the hopper. AMC's push into home delivery of its popular popcorn may find an audience while also enhancing the brand and the allure of grabbing the salty snack at an actual AMC multiplex. Recent moves like live-streaming NFL games on the big screen and a push to grow its private theater rentals could also gain traction over time.
The ultimate catalyst will be the return of potential blockbusters that can entice audiences back to the cinema. October has a few potential sleeper hits in the horror film genre, but then come November and December, when the highly anticipated sequels to Black Panther and Avatar will premiere exclusively on the big screen. There's no denying that movie theater stocks have had a rough run lately, but there's still time for 2022 to have a Hollywood ending.
