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Why AMC Could Be an Underrated Stock

After the disappointment of its 50% decline in the last year, AMC Entertainment Holdings Inc (NYSE:AMC) could deliver an improving stock price performance.

The movie theater chain is investing in its online presence to boost membership of its loyalty program, raising prices for popular movies and introducing live sports broadcasting to increase the size of its customer base.


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Growth potential

The company's loyalty program has grown to 21 million members in the U.S. It provides AMC with a significant amount of data on its customers, such as the movies they have viewed and the food and beverages they have purchased on their visits. This data can be used by the company to make personalized recommendations to its customers based on their prior transaction history. This should lead to an increase in its sales per customer, as it tailors its offerings to suit individual tastes.

AMC is making further investments in its website and mobile app to boost its online presence. This has contributed to it receiving over one billion visits to its website and mobile app in the last year. This should increase the number of its customers who sign up to its loyalty program, as well as to its A-List subscription service.

A-List recorded a 100,000 rise in members in the last quarter, which takes its total number of members to 900,000. It provides AMC with an opportunity to sell high-margin food and beverage products to its existing customers, while increasing its customer loyalty due to the value for money offered by its subscription service.

Refreshed strategy

The company is seeking to increase its customer numbers through offering different types of content across its theatres. For example, it introduced Artisan Films in August 2019 to appeal to consumers who may not normally be attracted by blockbuster titles. AMC is also aiming to broadcast live sporting events by the end of the calendar year, according to its second-quarter update. This could increase its sales during off-peak periods, as well as build an increasingly loyal customer base.

In addition, the business started testing a revised pricing plan in August. It will charge a small premium of up to $1.50 per ticket for movies that are likely to experience high demand. This follows the success of AMC's increased pricing on its busiest days, and could lead to rising sales and margins as its customers may be willing to pay a higher price for the most popular screenings.

Potential risks

The company's near-term outlook could be negatively impacted by weak consumer confidence. Consumers are concerned about the ongoing trade war between the U.S. and China, as well as European political uncertainty, according to the latest University of Michigan sentiment index.

Alongside this, AMC's financial performance may be hurt by its rival's plan to implement its own subscription service. Regal will seek to capitalize on the success of AMC's A-List subscription program by offering a similar service. This could lead to a price war that ultimately causes a deterioration in AMC's margins.

In response, the company announced the launch of an efficiency program in its second quarter results. It has identified around $50 million in potential cost savings that it will seek to deliver over the medium term. This could help to offset its potentially weaker sales in the short run, as well as strengthen investor sentiment towards AMC during an uncertain period for the wider industry.

Outlook

Analysts forecast that the company's loss per share will improve from a loss of 84 cents in fiscal 2019 to a loss of 25 cents in fiscal 2020. Its long-term growth strategy could boost its financial performance and produce a successful recovery in its stock price.

Disclosure: The author has no position in any stocks mentioned.

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This article first appeared on GuruFocus.