Why Cinemark Holdings Stock Plummeted 10% at the Open Today

What happened

Shares of movie theater operator Cinemark Holdings (NYSE:CNK) fell sharply as the market opened on Nov. 12, losing roughly 10% of their value in the first half hour of the trading day. So far this week has been a pretty volatile period for the stock. But when you step back and look at the price moves over the last few days everything starts to make a lot more sense. 

So what

On Monday, Nov. 9, Pfizer and partner BioNTech announced that they had achieved very encouraging results from their coronavirus vaccine efforts. Many of the companies that had seen the worst hit from the early economic closures and social distancing used to slow the spread of COVID-19 rallied. At some level this reaction makes sense, given that a vaccine could eventually lead life to return to some semblance of a pre-COVID-19 norm. Clearly, that would be good news for the nation’s No. 3 movie chain operator. And, thus, Cinemark’s stock rallied strongly on Monday. 

Two people drinking sodas in a movie theater.

Image source: Getty Images.

The problem here is that there’s still a long way to go before the world is back to normal. First a vaccine would need to get final approval. Then it would need to be produced in massive quantities and distributed widely. This is not a process that is going to happen quickly. In the meantime, Cinemark continues to face material COVID-19-related headwinds. For example, it is still operating under occupancy restrictions, it has to do more than ever before to keep its theaters clean, and it has little new content to show patrons because movie makers are reluctant to release new films. On top of that, worried consumers aren’t exactly breaking down movie theaters’ doors as the U.S. is seeing a resurgence of COVID-19 cases. 

Now what

Basically, investors appear to have gotten a little too exuberant on Monday, which is a pretty normal thing on Wall Street. And now that long-term investors have stepped back and digested the vaccine news a little, the perhaps overly upbeat outlook for Cinemark Holdings has begun to fade. That’s probably appropriate.

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