One of the top players in the theater chain space, AMC Entertainment Holdings, Inc., (AMC), saw its shares soar to hit their 52-week high of $20.36 on January 27 thanks to a short squeeze triggered by Reddit forum wallstreetbets. However, the stock has declined by 32.8% since then. Its shares rallied after the company announced on May 21 that its previously largest shareholder, China’s the Wanda Group, sold most of its remaining shares in the company. The stock has gained 34.7% over the past month to close yesterday’s trading session at $13.68.
However, the company was losing value prior to the COVID-19 pandemic. It has lost 10.3% over the past three years and 52.3% over the past five years. Furthermore, for the fiscal first quarter ended March 31, AMC’s top line declined 84.2% year-over-year to $148.30 million. Its net loss for the quarter came in at $567.20 million compared to $2,176.30 million in the prior-year period. Its U.S. market’s attendance was 6,239,000 in the quarter, down 84.3% year-over-year. So, even though AMC has been reopening its theaters and its shares have been rallying, we don't think its financials don’t support its price performance.
Here are the factors that we think could influence AMC’s performance in the coming months:
Reopening of Theatres May Not be a Support
AMC resumed operations at roughly 589 of its 593 domestic locations, and 110 of its 357 international locations in April 2021. However, this might be insufficient for the company to generate significant returns in the coming months because consumers are increasingly shifting to streaming platforms.
Its exclusivity window for new releases is also declining. For example, the Walt Disney Company (DIS) announced this month that two films—‘Free Guy’ and ‘Shang-Chi and the Legend of the Ten Rings’—will play only in theaters for 45 days before being available to stream. Also, the movies ‘Black Widow’ and ‘Jungle Cruise’ will have a simultaneous release in theaters and on Disney+.
Diluting Shareholder Value
On May 13, 2021, AMC completed its previously announced 43 million share at-the-market equity offering, launched on April 29. The company raised roughly $428 million of new equity capital but diluted the value for the shareholders in the process. It also completed its previously announced at-the-market equity offering of 50 million shares of its Class A common stock in January 2021.
Poor Profitability
In terms of trailing-12-month gross profit margin, AMC’s negative 260.9% compares to a 51% industry average. Its trailing-12-month levered free cash flow margin is also negative compared to an 11.9% industry average/ Also, its trailing-12-month return on total assets and trailing-12-month return on total capital are negative compared to industry averages of 1.5% and 3.9%, respectively.
Unfavorable Analyst Estimates
AMC’s annual revenue is expected to increase 94.5% year-over-year to $2.42 billion in its fiscal year 2021. However, analysts expect its EPS to remain negative for the current quarter, ending June 30, 2021 and in its fiscal 2021 and 2022 also. Furthermore, its EPS is expected to decline at a rate of 217% per annum over the next five years. Wall Street analysts expect the stock to hit $4.44 in the near-term, which indicates a potential 67.5% decline.
POWR Ratings Reflect Bleak Prospects
AMC has an overall F rating, which equates to Strong Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight different categories. AMC has a D grade for Quality, which is in sync with its lower-than-industry profitability ratios.
The stock has a D grade for Growth, consistent with analysts’ expectations that its EPS will decline in the coming months. Moreover, it has an F grade for Stability.
It has an F grade for Value also. This is justified given its 6.781x forward EV/S, which is 137.9% higher than the 2.82x industry average. AMC’s 2.60x forward P/S is also higher than the 2.25x industry average.
AMC is ranked #6 of 8 stocks in the F-rated Entertainment - Movies/Studios industry. Click here to see the additional POWR ratings grades for AMC (Sentiment and Momentum).
Better than AMC: Click here to access a top-rated stock in the same industry.
Bottom Line
AMC’s shares have increased more than seven-fold since hitting its 52-week low of $1.91 on January 5, 2021. However, this price performance doesn’t make the stock a good bet because it soared primarily due to a short squeeze. Its financials are not in sync with its share price and the company is not expected to witness sufficient growth even in the post-pandemic world owing to a shift by consumers to streaming platforms. Amid this backdrop, we think one should avoid this stock at all costs.
AMC shares were trading at $14.83 per share on Tuesday morning, up $1.15 (+8.41%). Year-to-date, AMC has gained 599.53%, versus a 12.55% rise in the benchmark S&P 500 index during the same period.
About the Author: Manisha Chatterjee
Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst.
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