Why Shares of Carmike Cinemas, Inc. Popped Friday

By Markets Fool.com

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

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What: Shares of Carmike Cinemas rose as much as 14% on Friday on the back of a Reuters report that the fourth-largest US cinema chain has hired JPMorgan Chase to "explore strategic alternatives," to include a potential sale. Reuters cited "people familiar with the matter."

So what: The movie theater industry is quite highly concentrated, but faces a secular headwind in the rise of digital viewing alternatives; last year attendance fell to a two-decade low. Last year, the nation's largest theater chain, Regal Entertainment, announced that it had hired Morgan Stanley to explore its options, but tabled that initiative in January. In 2012, China's biggest commercial property developer, Dalian Wanda Group, acquired the U.S.'s second-largest theater chain, AMC Entertainment, for $2.6 billion.

Now what: Carmike Cinemas had no comment on Reuters' report or the associated price action (they actually released a two-sentence press release to that effect!).

Carmike Cinemas' shares do not look cheap on traditional metrics and a sale is by no means assured -- I would strongly discourage individual investors from speculating on that outcome. More broadly, while investing in businesses/ industries that may be in secular decline can be profitable, it is typically more complex and more time-consuming than owning a piece of a business that faces no such challenge.

The article Why Shares of Carmike Cinemas, Inc. Popped Friday originally appeared on Fool.com.

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Alex Dumortier, CFA has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.