AMC, quite simply, is in the business of going to the movies.
As the world’s largest movie chain, AMC, according to industry profiles, has 358 theatres in Europe with a total of over 2800 screens, and 620 theatres in the United States, with over 7,000 screens among them. That’s a lot of movies!
AMC is not one of those conglomerate stocks that has a lot of diversified holdings and subsidiaries, where traders aren’t even really sure what the company does. Its brand operation is straightforward. AMC is viewed as an entertainment pure play that relies on having people in seats enjoying their popcorn.
However, that narrow business model hurt the company during the pandemic, as people all over the world eschewed the kinds of mass meetings that are necessary to enjoy a movie on the big screen (barring an outdoor or drive-in model.)
How Will AMC Revenues Fare?
The pandemic has been brutal to AMC’s revenues. Where years prior to 2020 saw annual revenues of around $5 billion, the total 2020 revenue was closer to $1.2 billion, with only a paltry $18 million recorded for the quarter reported June 30 of 2020.
Eventually, the number started to rise, and as of December 31 of 2020, AMC was back up to around $162 million in reported revenue for the quarter. In addition, analysts forecast that revenues will grow as people go back to movie theaters following brand-new coronavirus vaccine successes.
However, historical sales figures tell a tale of a company upset by big changes last year. The last time that annual revenues dipped as low as 2020 was a decade earlier when people tightened their belts in the wake of the financial crisis; then moviegoers still enriched AMC to the tune of $2.3 billion and change.
When AMC Earnings Go Positive?
Earnings information also does not inspire a whole lot of short term bullishness in AMC. First of all, AMC routinely reports negative earnings-per-share. For the last quarter, AMC missed analyst estimates by a few dozen cents, with a reporting of -$3.15 per share against analyst EPS expectations of -$2.80 per share.
For the next quarter, analysts report a range of estimates and consensus levels for projected earnings per share for AMC. Some are closer to the negative two dollar range, while others are closer to the negative one dollar range, but all of them expect that EPS will be negative once again.
That’s important, as negative EPS is sometimes troubling. It’s true that startups and innovators may go quarters or years with negative EPS, but to keep traders cautioned, what that means is that the company is not making profits per share.
For a firm that won’t enjoy the fruits of current research and development, that leaves AMC without a real road map to becoming profitable in the future – at least not in a conventional way.
Is AMC Stock Undervalued?
AMC has not been subjected to unusual downward pressure in share price that one might expect from struggling revenues and earnings.
Some analysts suggest that free cash flow models support a future price of around $13 per share. That, however, is controversial.
Again, the shortfalls seen during the pandemic could bar the door shut to higher prices short-term, and as the company strives to grow, the financial sharks in the form of short-sellers are circling.
AMC Stock Supported By /WSB But For How Long?
With AMC or any other stock that has popular appeal, the name of the game is volatility.
WallStreetBets and assorted rogue traders have jumped onto AMC, along with stocks like Gamestop (GME) and MicroVision (MVIS), gleefully yelling “stonks!” and believing that they will join a short squeeze to foil hedge fund short positions and boost share prices temporarily, perhaps permanently.
The risk of participating in something like this is that it’s ultimately easy for the stock to bottom out. One only has to look at the cratering of Gamestop (GME) where shares over $400 quickly crashed to under $100, wiping out 75% of their value seemingly overnight. Whoever is left holding the bag at this point realizes enormous losses – the kinds of losses that can permanently ruin a portfolio.
The other risk, obviously, involves pandemic precautions. Analysts are trying to figure out how likely people are to go back into the movie theater directly after coronavirus vaccinations.
Again, the correlation between moviegoers and profits is rather direct for AMC. The company needs a resurgence of conventional movies, in a time when streaming video models have never been more robust, and people have gotten profoundly used to not swapping germs.
Market research can support a trend either way, but the uphill activity needed to boost AMC into the black, or to higher per-share prices, is in some ways immense.
Bulls also need to look with a critical eye at share dilution over the past few years, which is seen as another downside to AMC right now.
Is AMC Stock Price Forecast to Rise?
It is unlikely with WallStreetBets fans supporting the share price short-term that we will see a lot of profit-taking within a couple of quarters. That’s food for thought for traders who are wondering whether AMC represents a stable and likely gainer in today’s market.
It’s not that AMC can’t rise long-term – but for the reasons explained above, many believe it is not likely to sustain a bullish trend for years with such weak fundamentals.
To support that thesis are the financials. Running a discounted cash flow forecast analysis on AMC reveals a fair market value or intrinsic price per share of $4.44 which corresponds to a very significant downside risk from current levels.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.