Shares of embattled theatre chain operator AMC Entertainment (NYSE:AMC) are ticking in the green again following its announcement of debt restructuring. However, these fleeting gains do little to impact the bearish outlook for AMC stock, which is overshadowed by its declining underlying business. AMC stock remains as precarious as ever, potentially sending its shareholders into dizzying headaches. Therefore, AMC is a no-brainer stock to sell, which will continue to erode shareholder value for the foreseeable future.
In May, after being off the radar for almost three years, Keith Gill, known as Roaring Kitty, triumphantly returned to X (formerly Twitter). Unsurprisingly, his return led to an explosive rally in meme stocks like AMC. AMC stock, in particular, surged over 110% from May 13 to May 14, only to slip back into the red shortly afterward.
Hence, AMC’s meme status has lost its edge, which is arguably the most noteworthy event for the business in the past few years. It now finds itself navigating a testing business environment with a massive debt load that could push it to insolvency.
AMC’s Debt Restructuring: A Desperate Lifeline?
AMC recently unveiled its plans to restructure roughly $4.5 billion of its debt load as it looks to extend maturities on more than 50% of its existing liabilities. In doing so, it will issue $1.2 billion in new-term loans and $414 million in exchangeable notes. The goal is to push back on the looming $2.8 billion debt maturities in 2026.
To give the devil its due, AMC has done well in cashing in on the meme stock frenzy and managing its debt load over the past few years. Its net debt pay-down yield, which measures the debts it has paid down in relation to its market capitalization, stands at an impressive 57%. Moreover, its outstanding share count has risen by 72% over the past three years. Just this May, it raised $250 million in new equity to pounce on the retail trading mania.
However, surprisingly, despite its massive debt, that’s not the primary issue impacting AMC’s business. It’s actually the stagnation in top-and-bottom-line growth over the past several years that’s truly troubling. In fact, the 3-year change in its long-term debt is at a negative 17%. In contrast, its revenue growth per share over the same period is at a negative 18.4%. Also, its median 10-year net margin is at a deplorable negative 5.4%.
Streaming Rivals and Box Office Blues
The entertainment world has undergone a seismic change over the past few years. Gone are the days of packed cinema halls, with Netflix (NASDAQ:NFLX) and chill reigning supreme. Hence, with such dynamics in play, AMC finds itself at a crossroads and at the mercy of big-ticket films to drive its business. To complicate things further, these potential box office blowouts are few and far between.
Hollywood is off to a challenging start to the year, reeling from the effects of strikes, which significantly impacted production schedules and delayed movie releases. Consequently, we have an uneven slate of films with disappointing box office performances. We recently had the lowest Memorial Day Weekend sales in decades. Additionally, as of May, Year-to-date box office sales are trailing 2023 numbers by 23.6%.
If that wasn’t enough, you have the streaming phenomenon, which continues to nibble away at what’s left of AMC’s share in entertainment. According to a recent Nielson report, streaming accounts for 40.3% of TV screen time in June, leaving other entertainment forms in the dust.
The reality is that viewers are flooded with choices, and billions of dollars are being poured into original programming. On the other hand, AMC relies on major studio releases that haven’t been up to snuff lately. Streaming is here to stay and represents a colossal change in content consumption, leaving AMC’s stockholders in a major spot of bother.
The Final Word on AMC Stock
AMC’s short-term gains from debt restructuring announcements and meme stock rallies have nothing to do with its fundamental challenges. It’s up against formidable headwinds in its niche, with an industry transformed by streaming services, diverting audiences from traditional cinema. Also, AMC is burdened with an enormous debt load, with its business dependent on a few big-ticket releases. Hence, it’s unsurprising that AMC stock is trading 91% behind its 52-week high price of $54.97, with more downside expected.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
On the date of publication, Muslim Farooque did not have (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