AMC Entertainment Stock Down 23% in March – Time to Buy AMC Stock?

The price of AMC stock has gone down more than 23% so far this month following the release of the firm’s financial results covering Q4 2021 despite beating analysts’ estimates for its revenues and earnings as the market’s risk appetite continues to be subdued by the Russia-Ukraine war and other factors.

For the three months ended on 31 December, AMC reported total revenues of $1.17 billion compared to $162.5 million it brought a year ago. This figure was slightly higher than Wall Street’s estimate of $1.11 billion for the period.

The management informed that 100% of its US theatres are already opened along with 95% of its international venues. During the quarter, a total of 59.68 million people attended AMC’s theaters compared to only 8.09 million back in the same quarter the previous year.

GAAP operating losses during the quarter ended at $60.4 million compared to $969.6 million the firm shed the previous year. Meanwhile, net losses ended at $134.4 million versus $952.9 million AMC lost in Q4 2020.

The firm’s adjusted EBITDA swung to positive territory at $215.5 million compared to a negative figure of $327.5 million reported the previous year as net losses shrunk. The firm also moved to positive cash-flow generation capacity, producing $224.4 million during the quarter compared to $31.2 million it burned in the preceding three months.

Finally, adjusted losses per share landed at $0.11 – slightly better than the Street’s consensus estimate of minus $0.15 per share.

Overall, this was a positive quarterly report. Analysts from Wedbush Securities said that they were optimistic about the performance of the business and how it rebounded from its pandemic-era levels.

However, they expected “continued volatility, with an uncertain long-term multiple given its 90%+ ownership by retail investors”.

The Chief Executive Officer of AMC Entertainment (AMC), Aron Adam, stated that he expects to see the company’s revenues returning to pre-pandemic levels in 2023 while he also said that box office could “nearly double” in 2022 led by the release of “The Batman” movie.

Meanwhile, the company announced yesterday that it purchased a 22% stake in Hycroft Mining Holding Corporation, a gold and silver mine located in northern Nevada.

“Our strategic investment being announced today is the result of our having identified a company in an unrelated industry that appears to be just like AMC of a year ago. It, too, has rock-solid assets, but for a variety of reasons, it has been facing a severe and immediate liquidity issue. Its share price has been knocked low as a result”, stated CEO Aron in regards to the transaction.

He added: “We are confident that our involvement can greatly help it to surmount its challenges — to its benefit, and to ours”.

What could be expected from this meme stock in light of these recent developments? In this article, I’ll be assessing the price action and fundamentals of AMC stock to outline plausible scenarios for the future.

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AMC Entertainment Stock – Technical Analysis

The price of AMC stock has declined 46.8% so far this year as market participants have adopted a risk-off attitude amid a growing number of negative catalysts including upcoming changes in the Federal Reserve’s monetary policy and the Russia-Ukraine war.

The stock is also currently trading way below its 52-week high of $72.62 per share and 58.2% below its 200-day simple moving average.

Back in January when I last wrote about AMC stock, I stated that the downside risk for the stock was quite high if the price broke below the $20 threshold.

Since that article came out, the stock has dived 35.5% and it is now tagging another relevant area of support at $15 per share.

Momentum indicators have turned bearish again with the Relative Strength Index (RSI) making multiple lower lows while the MACD remains in negative territory and below the signal line.

If the price fails to reclaim the $15 level, the stock could continue its downtrend toward the $10 threshold for a total downside risk of 33.3%.

AMC Entertainment Stock – Fundamental Analysis

Even though sales of AMC Entertainment recovered significantly from the hit they took in 2020 amid the pandemic, they still ended 2021 49.6% below pre-pandemic levels.

Back in 2019, the company generated $234.6 million in operating profits resulting in an operating margin of 4.3%.

If CEO Aron’s predictions turn out to be true, in 2023 the company should generate similar operating profits but net losses should end somewhere near $200 million if interest expenses remain unchanged.

By the end of 2021, AMC reported long-term debt of $5.43 billion on total assets of $10.82 billion including $1.59 billion in cash and equivalents.

Even though AMC took advantage of the meme stock craze to partially sanitize its balance sheet, it still has a significant amount of debt that needs to be paid and the company’s future cash-flow generation capacity does not seem to be sufficient to reduce that amount to the point that the business can be profitable again.

Moreover, it is quite troubling that CEO Aron has sold a significant portion of his shares in the company in the past three months despite his optimistic views about the business.

This and the out-of-the-blue acquisition of a gold mine could be considered red flags as they are a bit inconsistent with the narrative adopted by the senior management in regards to the firm’s financial situation and prospects.

Even if AMC manages to return to pre-pandemic levels soon, its financial situation still looks dire and its performance may continue to be plagued for years by elevated interest expenditures.

Moreover, the $7.5 billion market capitalization seems high considering the challenging environment in which traditional movie theaters are operating right now with competition coming from video streaming services getting stronger than ever.

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