Movie theaters aren’t what they once were. The phenomenon that raised AMC (NYSE:AMC) stock above pre-pandemic prices twice in recent months doesn’t account for this. AMC has finished trading above $13 per share on two occasions in 2021; at the end of January, and again in mid-March.
Fundamentally, there’s nothing to suggest it should have risen that high. It simply is another WallStreetBets flash in the pan.
Intuition tells me that AMC stock will rise when movie theater attendance begins moving upward, even though the stock shouldn’t. Despite that belief, financial realities indicate that AMC is going to fall below pre-pandemic prices of $6-7.
The truth is that the movie theater experience isn’t what it once was. It’s not that the experience has become worse per se, but rather that a shift has long been underway. Box office sales peaked nearly 20 years ago, in 2002, when 1.58 billion tickets were sold. Ticket sales decreased to 1.23 billion by 2019. That doesn’t seem like a gutting of demand, but when population increases are taken into account, tickets declined on a 31% per capita basis.
The main argument in favor of an AMC stock purchase is that it’s the biggest movie theater company in North America as measured by number of screens. Redditors and other pundits assume that pent up demand will drive movie-goers through AMC’s doors. As a result share prices will rise.
I agree with the logic partially. I think prices will rise because of the short-sighted nature of the markets today. But I’m sure AMC prices are going to drop back to around where they were before the pandemic.
It is really just a matter of timing and little more. If I were going to make a bet on AMC – and I’m not – I’d simply try to time the markets based on a few factors.
Right now 35.9% of the U.S. populace has received at least 1 vaccine dose, and 21.9% are fully vaccinated. Of course this will go a long way toward bringing foot traffic into AMC’s theaters.
Estimates are that 70-80% of the population will need to be fully vaccinated in order for herd immunity to occur. I have to assume that as that number is approached, AMC is going to see a spike in foot traffic.
AMC isn’t staggering its theater openings based on that by any means. In fact, 99% of the company’s U.S. theaters are currently open.
Say what you will about that, some might consider it irresponsible, greedy, or just plain dangerous. But the real kicker is AMC’s shareholder letter which contains ‘Proposal 1’ for voting.
Shareholders Between a Rock and a Hard Place
AMC is proposing that its shareholders allow the company to amend its charter and increase the total number of shares by 500 million, to a total of 1.024 billion.
AMC is trying to sell shareholders with promises of debt reduction, increased liquidity, increased negotiation leverage, and ability to pursue growth opportunities.
Surely the company can use the proceeds from an equity capital raise to do all of those things. It isn’t lying. But in the process, shares become diluted by as much as nearly 50%.
It’s clear the company is truly desperate, despite its rosy PR language. Shareholders are in a tough spot. Vote ‘no’, and there’s every chance shares run to zero. Vote ‘yes’ and your shares become immediately less valuable.
AMC’s revenues were gutted by the pandemic. They dropped precipitously between 2019 and 2020. But the industry has been trending down for a long time. My guess is that most current shareholders are hanging on to the sinking ship that is AMC. They’re waiting for the most graceful exit into the sea below. That’s not a great place to be, so don’t put yourself in their shoes by establishing a position in AMC stock now.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.”