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I've seen some fantastic stock opportunities since the pandemic hit the U.S. economy.
We saw the fastest sell-off in history, followed by one of the most rapid recoveries in history.
We've seen Overstock.com Inc. (NASDAQ: OSTK) soar tenfold as traders piled into the stock after the sell-off. An unknown company called Genius Brands International Inc. (NASDAQ: GNUS) ran up fivefold after announcing comic books based on Stan Lee's characters. Finally, Waitr Holdings Inc. (NASDAQ: WTRH), based in Lafayette, La., jumped more than 1,300% during the pandemic.
These successes have investors looking at beaten-down stocks they think will surely explode higher as soon as the pandemic is behind us. These are usually airlines, cruise lines, casinos, and theater stocks. But that's just wishful thinking, especially when it comes to a stock like AMC Entertainment Holdings Inc. (NYSE: AMC).
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Some investors are placing bets that AMC theaters will be the next unlikely success story. AMC is one of the largest movie theater companies, with about 1,000 theaters and 11,000 screens in the United States. After all, the pandemic can't last forever, and someday we will all go back to the movies like nothing ever happened, right?
"Someday" may happen, but it won't be anytime soon.
And it may be too late for AMC...
It Doesn't Get Better Soon
AMC has now delayed theater reopenings several times. With the virus running across much of the planet once again, few people will be heading to the movies.
AMC is living on borrowed money right now, too. And that's not a recipe for big shareholder returns.
The company sold $500 million of notes with a 10.5% coupon back in April. While that gave the firm some cash to use in the short term, it now must pay interest on that money. The company already had about $5 billion of debt outstanding, so adding to the debt load to delay is just rearranging the deck chairs on the Titanic.
If I had a fund manager working for me who bought these bonds, I would have fired them.
Digging into the Dollars
Before you pull the trigger and buy shares of AMC in the hopes it recovers some of the 65% it has lost in the past year, keep something else in mind.
This stock was dropping before the pandemic arrived in full force. Movies are not as popular as they used to be, especially with major studios gearing their offerings toward paint-by-numbers action sequels that play well internationally. Plus, a date night at the movies can easily run over $50 with a few snacks. Patient fans are increasingly happy to wait for a movie to show up on a home streaming service and watch it for $5 or less.
In turn, AMC was already struggling to generate cash flows and profits before movie theaters were closed by state and local governments to prevent the spread of the virus. The amount of debt owed by the company has gone up every year since 2014, so in no small degree, the company has been living on borrowed money.
It gets worse too.
AMC has not paid rent in several months.
While their landlords have been gracious in negotiating rent deferrals and even cancellations so far, they will not do so forever. Most of their landlords are real estate investment trusts who have obligations and debts of their own, and they will be forced to move against AMC to collect rent or cancel the lease.
A group of AMC's bondholders has already declared that the firm is in default on their obligations, and their plans to execute a debt swap to restructure the debt is inadequate. The lenders include private equity firms, including Apollo Global (APO) and Ares Management, who are highly unlikely to back down without a fight. It is a safe bet that they had a definitive plan to make money by liquidating AMC before they ever lent the struggling company a dime.
There have been some weird and wonderful stock stories since the pandemic began. The amazing recovery of a chain of highly indebted movie theaters that cannot reopen due to the virus's renewed spread will not be one of them.
Instead of speculating on a clunker like AMC, you can do a lot better by zeroing in on the best stocks on the market.
And we've done the research for you.
You can get our list of the seven best stocks to buy now just for being a reader.
About the Author
Garrett Baldwin is a globally recognized research economist, financial writer, and consultant with degrees from Northwestern, Johns Hopkins, Purdue, and Indiana University. He is a seasoned financial and political risk analyst, with a focus on stocks, hedge funds, private equity, blockchain, and housing policy. He has conducted risk assessment projects for clients in 27 countries, and consulted on policy and financial operations for some of the nation's largest financial institutions, including a $1.5 trillion credit fund, a $43 billion credit and auto loan giant, as well as two of the largest Wall Street banks by assets under management.
Garrett joined Money Map Press as an economist and researcher in 2011, specializing in alternative strategies with an emphasis on fundamental and technical analysis.