The shares of AMC Entertainment Holdings (NYSE:AMC) started the trading day off heading sharply higher, rising just shy of 9% in the first few minutes of trading. They quickly fell from that peak, however, and were sitting at a far more modest advance of about 2% at 11 a.m. EST. Why the burst of excitement?
The big story here is that AMC Entertainment is struggling mightily today. Its business was basically shut down by the government in early 2020 to help slow the spread of the coronavirus. When the reopening process started, movie makers were reluctant to bring out the blockbusters that bring theater goers out. And, of course, patrons worried about COVID-19 were hesitant to venture into any group setting (like a movie theater), where the coronavirus can easily spread. Third-quarter attendance was down more than 90% year over year.
Highlighting just how bad things are, AMC Entertainment recently announced plans to sell stock. Earlier it said it could run out of cash by the end of 2020 or in early 2021 if it doesn’t add to its coffers. That got investors worried about the risk of bankruptcy. In the SEC documents for the current stock sale it was much less coy on the bankruptcy issue, saying specifically that it would likely be forced to restructure, in court or out, if its capital-raising efforts proved unsuccessful. However, in a recent SEC filing, investment powerhouse BlackRock revealed it had taken a 4.6% stake in AMC. Some investors appear to have taken the move as a sign that BlackRock believes AMC will muddle through to better days. And, thus, a quick bounce.
The extra cash from an equity sale alone isn’t going to be enough to save AMC Entertainment from the troubles it is dealing with. It needs customers to return to its theaters, which might not happen for some time. That reality is still weighing heavily on the stock and rightly so, helping to explain why the price advance was so short-lived. Basically, don’t read too much into BlackRock’s stake or the brief price spike. The big picture is still pretty grim.