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Why AMC Entertainment Dropped as Much as 13% Today

What happened

Shares of movie theater operator AMC Entertainment Holdings (NYSE: AMC) dropped a little more than 13% at one point in morning trading on Dec. 15. Although the stock gained back some of that loss, it was still lower by 10% at roughly 1 p.m. EST.

So what

The truth is that the company didn't post any news to its website that would have justified today's drop. And the news from the Wall Street press didn't seem to provide any material new information about the company, either. The real issue is that investors are starting to question just how much time AMC has left before it runs out of cash, something it has already warned is a very real possibility.

Image source: Getty Images.

The linchpin here is time and it is running very short, with AMC doing everything in its power to get the cash it needs to survive the massive hit from the pandemic. That includes issuing stock at severely depressed prices and inking deals with distressed debt lenders. Rumors are also swirling that some of the company's lenders are urging it to file for bankruptcy. Although the coronavirus vaccines now starting to be distributed are a positive development, it will be months, if not quarters, before they are distributed widely enough to have an impact on the direction of the pandemic. So whatever help vaccines may offer in 2021 will likely be too late to help AMC with the cash crunch it is currently facing. The weak pricing today is just another reflection of the increasingly troubled outlook here.

Now what

AMC Entertainment is, at best, a turnaround stock. It would probably be more accurate to call it a special situation, since bankruptcy is a looming possibility. Most long-term investors should avoid the stock.

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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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