Why AMC Has Led Other Cinema Actions Much Higher This Week


What happened

Actions of AMC Entertainment (NYSE: AMC) Head for Friday’s close of around 19% for the week despite a large pullback on Thursday, leading to (but also exceeding) similar increases in stocks from rival theater chains Cinemark Holdings (NYSE: CNK), IMAX (NYSE: IMAX), and royal owner Cinémonde Group (OTC: CNNW.F). The gains were widely recorded on Tuesday, following the FDA’s announcement on Monday that it had approved its first COVID-19 vaccine based on standards going beyond emergency use approval which had enabled rapid vaccine development before.

Investors viewed the news as a sign that the consumer environment is returning to pre-pandemic norms. But we shouldn’t ignore the fact that some traders have taken advantage of the FDA’s move to trigger another short squeeze for this stock of memes.

So what

It is complicated.

For now, most theaters have reopened, unfazed by the rapid spread of the delta variant of COVID-19, even though earlier variants of the coronavirus shut down the film industry for most of 2020. Some customers are returning to these cinemas reopened, but others remain hesitant. Domestic ticket sales are at about half of what they were before COVID-19 rocked the world. And it turns out that many moviegoers are content to watch the new releases available to them at home rather than on the big screen, and the studios are content to make the home viewing option available as long as the theatrical distribution of them. new films is hampered.

However, the business might not be hampered any longer, at least according to some AMC shareholders. They suggest approval by the Food & Drug Administration of the COVID-19 vaccine developed by Pfizer (NYSE: PFE) and BioNTech (NASDAQ: BNTX) marks a turning point in the war against the pandemic. Specifically, they argue that now that the vaccine has gone through the longer and more thorough FDA drug approval process, more people are likely to feel comfortable getting the vaccine.

And yet, this thesis is interesting. Also on Tuesday, “#AMCSqueeze” was one of the TwitterTrending terms from, suggesting that the gains were part of a larger concerted effort to scare off short sellers from the stock, fueling even more gains. (To close a short position, the stock must be bought directly, which may increase the price of that stock.)

AMC given by YCharts.

While nowhere near the same caliber of meme stocks as AMC, Cineworld, IMAX, and Cinemark are generally grouped together by traders and pushed in the same direction as AMC stocks.

Now what

Beware of jumping to the conclusion that is being expressed about the more conventional Food & Drug Administration approval of the COVID-19 vaccine made by BioNTech and Pfizer.

All consumers are delighted that the vaccine in question has withstood the more rigorous standards that do not apply when looking for an emergency solution. But the FDA’s decision doesn’t necessarily change minds hesitant about the vaccine. A survey conducted by the NORC Center for Public Affairs Research of the Associated Press in July found that 80% of the population who had not yet been vaccinated at the time are still not likely to be voluntarily vaccinated in the ‘to come up. Many of those same people also believe that the vaccines currently available are not particularly effective against the delta strain that is currently ravaging the country, which accounts for the vast majority of new infections in the United States. And it’s not a completely off-base concern. Groundbreaking cases are occurring, with some data suggesting they account for up to 10-20% of infections.

Do not try to reduce this hesitation either. The Associated Press’s NORC Center for Public Affairs Research found, in a separate poll conducted this month, that only half of adult workers nationwide support the idea of ​​requiring vaccinations for on-site employees. About a quarter of these respondents categorically oppose vaccination requirements.

Given that the country’s population is already about as vaccinated as they are set to become, the question now is: what will really restore regular trips to movie theaters, especially now that have studios gotten used to selling movies direct to consumers as streaming offers?

Cinephiles in a theater.

Image source: Getty Images.

This is not a question that will be answered – or even recognized – by followers of the memes stock who have every interest in seeing only AMC and its fellow theater fellows rise. And to be fair, so far they haven’t needed to discuss the underlying fundamentals of the business or its plausible future; they have been successful in getting the stock moving by triggering short cuts or simply capitalizing on the threat of short cuts. Their tactics are working.

The passage of time ultimately works against this strategy, as it allows investors to weigh the actual results of movie chains and compare them to what has turned into high valuations. Indeed, the weak follow-up to Tuesday’s bullish push turned into losses on Thursday and little movement on Friday, which is telling in itself. This result indicates that there are simply not many (if any) buyers on the sidelines ready to step in.

In this context, AMC and its peers are not names that the most risk-tolerant speculators can really support.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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