AMC’s Blockbuster Bust: A Reality Check for Die-Hard Fans
It’s safe to say that “meme mania” has long left the scene with AMC Entertainment (NYSE:AMC). Not only has AMC stock given back all of its gains from the “meme stock” era. Shares in this movie theater chain have cratered to new all-time lows. AMC shares are being affected by continued shareholder dilution. To stabilize its finances, the company sells new shares or exchanges them for debt.
The dilution helps AMC’s balance sheet, but investor payoff depends on improved operating performance. However, I wouldn’t count on this happening. At least, based on both box office forecasts, plus sell-side revenue and earnings forecasts for the company itself.
AMC Stock: Caught in a Dilution Spiral
It’s apt to describe the situation at hand with AMC Entertainment stock as a dilution spiral. That’s when a company persistently sells new shares and/or convertible shares. Shareholder dilution reduces stock value, requiring further dilution if fundamentals don’t improve.
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Admittedly, the “spiral” with AMC stock may not be as bad as the spirals being experienced by companies like Mullen Automotive (NASDAQ:MULN). Besides the fact the impact of shareholder dilution has not been as severe with AMC as has been with MULN, AMC Entertainment at least is profitable on an EBITDA basis.
This former meme king is also getting more out of its dilution activities. Mullen is quickly spending its cash, while AMC is diluting its shares to boost its cash reserves and reduce its debt (albeit slightly, as InvestorPlace’s Eddie Pan reported on Jan. 3).
Still, while AMC’s dilution spiral may be “less bad” than with other stocks experiencing never ending dilution, as I mentioned above, the ends cannot justify the means, given the strong likelihood of continued poor operating results.
Box Office Declines are the Coming Attraction
In 2023, a spate of popular film releases resulted in a relatively strong domestic box office. While still below pre-pandemic box office levels, $9 billion in gross receipts represented a nearly 300% increase compared to 2020.
A banner year at the box office didn’t help prevent AMC stock from experiencing severe price declines. However, it enabled the company to get back to positive EBITDA. Further improvements may not be possible after this operating performance improvement.
Instead, fewer expected new releases (because of last year’s Hollywood labor strikes) point to an 11.1% decline in box office gross receipts, down to $8 billion. This box office forecast explains the weak forecast for AMC’s 2024 financial performance.
Per analyst estimates, AMC is expected to report a 2.3% decline in revenue, and 25.4% increase in net losses (from $1.26 to $1.58 per share). Expect slightly worse results and continued decline in this stock as the share count keeps climbing.
Don’t Count on a Hollywood Ending: Sell/Avoid Instead
At one point, one could compare AMC Entertainment stock to a fun, witty action-packed caper. In 2021, a ragtag group of maverick traders beat the odds, outwitting the so-called “smart money” of Wall Street in the process.
Since the peak of “meme stock mania” in 2021, however, AMC has been little more than a tearjerker. Barring an unexpected repeat of last summer’s “Barbieheimer” phenomenon, chances are that the company won’t make much headway improving sales/profitability this year.
Shareholder dilution is likely to persist. CEO Adam Aron may be stating that AMC is “blazing new trails,” but I’m pretty sure even the most diamond-handed of fans of this stock are likely rolling their eyes at such remarks.
Don’t count on a Hollywood ending here. The situation is likely to worsen from here, so sell/avoid AMC stock instead.
On the date of publication, Thomas Niel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.
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