Leawood, Kansas-based AMC Entertainment Holdings, Inc. (AMC) is a leading theatrical exhibition company that delivers distinctive and movie-going experiences. The company owns, operates, and has interests in theaters in the United States and internationally. It operates more than 950 theaters and 10,600 screens.
Last year’s meme stock frenzy led to the struggling cinema chain AMC skyrocketing. While the stock declined later, the return of the meme craze in recent months led to the stock gaining significantly over the past three months.
On August 19, AMC and other movie theater stocks plunged significantly after The Wall Street Journal reported that Cineworld, the British cinema company, which owns Regal Cinemas, is getting ready to file for bankruptcy after struggling to rebuild movie-theater attendance from pandemic lows, with viewers increasingly inclined to stream movie releases at home.
Cineworld’s net debt stood at $8.9 billion at the end of 2021 compared to $1.8 billion in revenues. “Despite a gradual demand recovery since reopening in April 2021, current admission levels have been below expectations. These lower admissions are due to a limited film slate that is anticipated to continue until November 2022 and are expected to negatively impact trading and the group's liquidity position in the near term,” the company said.
Amid the uncertainty surrounding the cinema chain stocks, AMC Chairman and CEO Adam Aron said, “At AMC, as we have publicly disclosed previously, the film slate in the third quarter of 2022 is expected to be relatively weak. However, we remain quite optimistic about the increasing demand for our portfolio of movie theatres in the fourth quarter of 2022 and calendar year 2023.”
In addition to the news of Cineworld’s bankruptcy plans, AMC’s deteriorating financials and declining growth have contributed to the bearish sentiment surrounding the stock. It has plunged 26.3% in price over the past five days and 33.8% year-to-date to close the last trading session at $18.02. It is currently trading 65.9% below its 52-week high of $52.79, which it hit on September 13, 2021.
Here is what I think could influence AMC's performance in the upcoming months:
Top-line Growth Does Not Translate into Bottom-line Improvement
For the fiscal 2022 second quarter ended June 30, 2022, AMC’s revenue grew 162.3% year-over-year to $1.17 billion. However, the company's operating costs and expenses increased 59.5% from the year-ago value to $1.18 billion. Its operating loss and net loss amounted to $16.10 million and $121.60 million, respectively.
Furthermore, AMC’s adjusted loss per share came in at $0.20 for the second quarter. The company’s cash outflow for operating activities amounted to $76.60 million. As of June 30, 2022, its cash and cash equivalents stood at $965.20 million, compared to $1.59 billion as of December 31, 2022.
Weak Growth Prospects
Analysts expect the company’s revenues to rise 71.5% year-over-year to 4.33 billion for the fiscal year (ending December 31, 2022). However, the consensus loss per share estimate is expected to come at $1.26 for the ongoing year and $0.61 for the following year.
Also, the company’s loss per share for the fiscal 2022 third quarter (ending September 2022) is expected to come in at $0.27. Furthermore, the company has missed the consensus EPS estimates in each of the trailing four quarters, which is disappointing.
Low Profitability
In terms of trailing-12-month gross profit margin, AMC’s 10.75% is 78.7% lower than the 50.52% industry average., And its trailing-12-month EBITDA margin of 2.40% is 87.1% lower than the 18.63% industry average. Likewise, the stock’s trailing-12-month net income margin of negative 21.03% compares with the industry average of 5.51%.
In addition, AMC’s trailing-12-month ROTC and ROTA are negative at 2.16% and 8.33%, respectively.
Stretched Valuation
In terms of forward EV/Sales, AMC’s 4.34x is 107.3% higher than the 2.09x industry average. Its 72.73x forward EV/EBITDA is 733% higher than the 8.73x industry average. In addition, the stock’s 2.15x forward Price/Cash Flow is 56% higher than the 1.38x industry average.
Consensus Rating and Price Target Indicate Downside
Of the four Wall Street analysts that rated AMC, two rated it Sell, while two rated it Hold. The 12-month median price target of $7.50 indicates a 58.4% downside. The price targets range from a low of $7.50 to a high of $11.00.
POWR Ratings Reflect Bleak Prospects
AMC's overall D rating translates to a Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.
AMC has a grade of D for Value and Sentiment. The stock’s higher-than-industry valuation multiples justify the Value grade. In addition, AMC’s D grade of Sentiment is consistent with its bleak earnings growth estimates.
AMC is ranked last out of 7 stocks in the F-rated Entertainment-Movies/Studios industry.
Beyond what I have stated above, we have also given AMC grades for Value, Growth, Quality, and Momentum. Get all the AMC ratings here.
Bottom Line
Shares of AMC have plummeted sharply after the news that its biggest rival, Cineworld Group, is preparing to file for bankruptcy amid lower-than-expected ticket sales and debt woes.
Moreover, AMC’s poor financials, bleak growth prospects, low profitability, and stretched valuation are expected to keep the stock under pressure in the near term. So, we think the stock is best avoided now.
AMC shares fell $7.02 (-38.96%) in premarket trading Monday. Year-to-date, AMC has declined -58.05%, versus a -11.50% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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