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Why AMC Entertainment Stock Collapsed 11% at the Open Today

What happened

Shares of movie theater operator AMC Entertainment (NYSE: AMC) fell just about 11% at the open of trading on Oct. 20. That follows on the heels of a giant advance one day earlier, after news that New York state would start allowing many movie theaters to open again after being shut for months because of COVID-19.

So what

AMC isn't planning to waste any time as it looks to get its New York theaters reopened for business, starting the process this Friday, Oct. 23. To be fair, this is very good news for the company because New York is a key market. However, after a huge run-up the day before, investors appear to be stepping back and reassessing their enthusiasm. That's a good call.

An arm pointing to graph on computer screen

Image source: Getty Images.

It was only a few days ago when AMC Entertainment reported in a Securities and Exchange Commission filing that it might run out of money by the end of 2020 or in early 2021. Although it stressed that bankruptcy wasn't on the table at this point, it would be hard for anyone reading that update to not think it was a distinct possibility. However, the more important bit of information from that report as it relates to the reopening of New York theaters is that, despite having 87% of its theaters reopened, revenue had declined by 85% year over year. Sure, reopening locations is important, but if customers aren't inclined to go to the movies it won't do much to solve AMC's bigger problems.

Now what

AMC Entertainment is working hard to survive the COVID-19 pandemic, but it hasn't been easy. The reopenings announced on Oct. 19 are a step in the right direction, but that step is going to be a tiny one if moviegoers decide to stay at home. It's hardly surprising that investors are taking some profits one day later, as they think through the longer-term implications here. AMC is still in a precarious position and conservative long-term investors should tread very cautiously.

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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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