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Should I buy AMC stock or Cineworld shares?

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Rupert Hargreaves
·3-min read
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Cineworld cinema
Cineworld cinema

As a way to invest in the economic reopening over the next few months, AMC (NYSE: AMC) stock and Cineworld (LSE: CINE) shares are two good options. Both of these companies have been hurt badly by the pandemic. As such, they appear to have more to gain from the re-opening than many other businesses.

However, I think one of these companies could be a much better buy than the other.

AMC stock outlook

Cineworld and AMC are two of the largest cinema operators in the world. Unfortunately, their size has not helped them in the pandemic. Both companies closed virtually all of their cinemas last year as they couldn’t make the numbers work with limited audiences, delayed film releases, and social distancing.

With losses growing, both companies were also forced to ask creditors for more breathing space and to raise money from investors.

But now, there’s light appearing at the end of the tunnel. Last week, AMC announced that 98% of its US locations would be open for business on 19 March. By the 26, 99% of all of its sites will have reopened.

This is a positive step forward for the group. However, the company is unlikely to see revenues rebound to 2019 levels anytime soon. It has warned that social distancing and automatic seat blocking and state and local regulations for seating capacity will weigh heavily on its potential to generate revenues in the near term.

Cineworld shares: underpressure

As the company reopens, AMCs future is looking up. The same cannot be said for Cineworld. The business has not issued a press release telling investors when it will open its UK and US theatres. In theory, the corporation can open theatres here in the UK by the middle of May.

However, management may decide to wait until social distancing restrictions are lifted. The company closed many of its locations last year before the lockdown as it could not make any money with restrictions in place.

The risks both of these companies face are clear. If customers don’t return in significant numbers, their balance sheets will remain under pressure, and it may take years for them to return to health.

On the other hand, if customers return quickly to open locations, Cineworld shares and AMC stock could recover significantly. We should have the answer to this relatively quickly.

Customer numbers at AMC’s open locations will give us some guide as to Cineworld’s potential, although that does not necessarily mean the same trend will happen across the pond.

The debt factor

Debt is another factor. AMC has net debts of $5.5bn, compared to its market capitalisation of $7bn. Cineworld’s obligations sit at $8.2bn compared to a market value of $2.4bn.

In my opinion, these figures make it clear which company I should back. Cineworld has far too much debt, and with that being the case, I would buy AMC stock for my portfolio.

Cineworld shares might look cheap compared to the company’s trading history, but there’s no guarantee it will ever be able to return to its former glory.

The post Should I buy AMC stock or Cineworld shares? appeared first on The Motley Fool UK.

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Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2021