If you own shares of AMC at $17 or lower, you should feel very safe holding this stock for the next 18 to 24 months. Do not panic sell or even worry about the short squeeze going on right own. Relax, hold - and enjoy the ride.
Here are the basics. The pandemic has devastated the theatrical biz for obvious reasons and AMC was especially hard hit because of their pre-existing debt load. AMC is the world’s largest movie chain and spent the last several years increasing screen count and investing in refurbishing their individual locations (reclining seats, sound, updating interiors, etc). In another matter, the theatrical business has been in a battle with streamers over release windows (I won’t get into detail over that here) and with the recent announcement that Warner Bros was releasing their entire 2021 slate onto HBO Max as well as in theaters, it rang alarm bells all through Hollywood that theater distribution was going the way of vinyl records. This is not true – in the short term.
Outside of the U.S., especially in China (world’s second largest movie audience – about to be largest) where the pandemic has been better controlled, audiences have returned to theaters, not at 100% pre-pandemic levels but still very healthy percentages. Here in North America, we have dozens and dozens of large budgeted movies sitting on shelves that need to be released and in many cases can only be released in theaters to recoup their budgets (James Bond, Marvel movies, Mission Impossible, etc). I repeat, they have to be released theatrically. Coinciding with that fact, the rest of the world has already proven that audiences will return to theaters not only out of interest in the films showing but in the form of ‘stress release’ from a year of being pent up. We want to return to our normal lives and restaurants, live concerts and theaters will have a huge upswing once our vaccine rollout gives us control over the virus. Over the next 18-24 months, AMC will return to at least 70-80% pre-pandemic levels (possibly higher in the short term) and it’s stock price will reflect that momentum. In fact, the short squeeze going on right now has allowed AMC to shed hundreds of millions off their debt sheet, making their stock that much more valuable in its recovery. If the pandemic lasts even longer than expected, their healthier balance sheet will allow them to borrow even more to survive as their current fantastic management team has already proven how creative and successful they are at that game. Many believed they should have declared bankruptcy and reorganized in December as a smart business move to shed debt but management resisted and proved they were extreme fighters – and they won. The announcement they had raised 917 million in December and early January started this squeeze in the first place.
After 24 months, I believe theaters will see a retraction in the market as streaming will continue to win this game long term. Studios and film makers will need to wrestle with budgets and the realities of revenue stream on streamers vs theatrical and how their corporate owners juggle profits between the two distribution methods. Streaming will never produce the same profits as theatrical (revenue, merchandising, brand building, etc) but streaming propels global subscription, which in the long run may be more profitable for Disney, Netflix, AT&T, etc.
So, in the meantime, you should feel very, very safe holding your AMC shares at $17 or lower for the next 18-24 months. Feel free to ride the squeeze because that’s all gravy to what is otherwise a very solid investment in a vehicle that has a very strong outlook on proper business fundamentals.