Cinemark’s (NYSE:CNK) 15.6% weekly gain and 103% monthly gain would confound experienced investors. The movie theatre business is suffering from negligible customer traffic. The pandemic in the U.S. is worsening. This also threatens the solvency of AMC Entertainment (NYSE:AMC).
So, why did AMC stock rise by 40% in the last week, too?
Markets are speculating that the vaccine for Covid-19 will come far sooner than anyone expects. Talk of AstraZeneca (NYSE:AZN), Moderna (NASDAQ:MRNA), and BioNTech (NASDAQ:BNTX) distributing a vaccine lifted the sector. Airlines and cruise ship stocks also rose. In the next month, none of these three sectors are likely to post meaningful revenue growth. The world is months away from wide distribution.
AMC is especially vulnerable to bankruptcy risks. It cut its cash burn rates to impressively low levels. Studios are delaying movie releases, opting for a streaming launch only. By cutting AMC and CNK out completely, revenues will continue falling.
On Nov. 11, AMC sold $70 million of shares to raise cash and to pay its bills. Shareholders will continue getting diluted for the next few months. Debt holders get priority if AMC liquidates.
Watch out for profit-taking in AMC and CNK stock. Sell shares on the first sign of a sharp drop.
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