Can AMC Entertainment Stock Endure the Pandemic?

AMC is still down 39% year-to-date following this week's rally

Nov 25, 2020 at 10:42 AM
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AMC Entertainment Holdings, Inc. (NYSE:AMC) is the largest movie theater chain in the world, and owns more than 1,000 theaters and over 11,000 screens in the US and Europe. Over the past week, AMC has been on a torrid bullish run of 32%. However, the company still remains one of the most negatively impacted by the coronavirus pandemic. The stock is currently trading down 39% year-to-date, even with this month's 83% gain. But considering its all-time low of $1.95 it hit on April 13, AMC is slowly pulling itself up by the bootstraps.

Two factors make AMC an intriguing play going forward. First, the stock remains heavily shorted. Short interest increased by 11% in the most recent reporting period, and the 23.89 million shares sold short now account for a whopping 45% of AMC's total available float. This makes the equity ripe for a short squeeze that could fuel even more tailwinds.

Secondly, now looks like an opportune time to get in on AMC's next move with options. The equity’s Schaeffer’s Volatility Index (SVI) of 163% stands in the low 20th percentile of its annual range. This means options players are pricing in relatively low volatility expectations at the moment. 

AMC Entertainment has missed expectations with a clean sweep on all four of its most recent earnings reports. However, all four of the post-earnings reactions have been to the positive, including a 14.7% pop back in August. The movie theater chain's next corporate report isn't until February 25, so perhaps some upbeat pandemic rhetoric can keep the wind at AMC's back.

The last dividend AMC paid was for $0.03 in the first quarter of 2020. Prior to the coronavirus pandemic, the company had paid dividends since 2014.

AMC Entertainment has been struggling to generate a consistent net income for many years now, largely due to a rise in the popularity of streaming services like Netflix (NFLX). AMC Entertainment regularly flipped from annual profitability to annual net losses. However, in recent years, the annual net loss years started to significantly outnumber the profitable years. Most recently, AMC Entertainment has fallen deep into the red with over $3.6 billion in net losses posted over the past twelve months.

The coronavirus pandemic has seemingly dealt a final blow to the AMC Entertainment business. The entire movie theater industry has been seemingly halted by COVID-19, which also means there won’t be new movie screenings any time soon. All of this coupled with the $11.34 billion in debt being carried by AMC Entertainment translates into a company is facing a massive uphill battle for survival.



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