When AMC Entertainment (NYSE:AMC) announced a gradual reopening and capacity expansion of its theatres, the stock topped over $6.00 only to end last week at $4.18.
The stock is in danger of re-testing a double-bottom at $2.00. A dramatic increase in coronavirus infections in the U.S., a few weeks after the Memorial Day weekend, resulted in people taking a lax view on social distancing.
On June 18, AMC said it would open most of its U.S. theatres on July 15. But on the week that followed, States like Florida and Texas reported a disturbing increase in infections. This undermines the safety of going to movie theatres.
Still, AMC has a mandatory mask policy and is limiting theatre capacity to 30% in the first phase. By contrast, virus infections soared because young people going to bars and restaurants ignored social distancing rules and did not wear a mask.
AMC’s plans to re-open in a four-phased approach has a good chance of drawing a steady stream of customers. By limiting the theatre capacity and attentively cleaning high-traffic areas, customers will not be afraid to watch a blockbuster release.
AMC is a wait-and-see stock. Disney might postpone the release of Mulan. And Warner Brothers’ Tenet, set for an August release, will get postponed, too. This is a temporary headwind for AMC investors.
Disclosure: the author owns AMC shares.
