As the latest round of “meme stock mania” enters the rearview mirror, the focus with AMC Entertainment (NYSE:AMC) is shifting back to the movie theater chain’s fundamentals. That does not bode well for the company, for its management, and for AMC stock investors.
For the company and for management, and end to “meme mania” means fewer opportunities to raise additional capital through share sales. This will in turn limit AMC’s ability to both pare down debt, and finance its post-COVID turnaround.
Yes, as fewer future capital raises mean less shareholder dilution, in a way this is sort of good news for AMC investors. However, considering the company’s questionable chances for a post-COVID rebound, lower prices for shares remain likely ahead.
AMC Stock: Back to Fundamentals
On one hand, it’s reasonable to say that it may be too soon to declare that meme rallies have come and gone once again for AMC Entertainment. We may not have heard the last from “Roaring Kitty.”
On the other hand, as scrutiny of his latest activities may mean fewer meows ahead from the famed meme stock investor, it may be best to err on the side of caution.
Instead of assuming another meme wave is coming for AMC stock, assume the only thing that will drive a rally for shares is news of further improvement in AMC’s operating performance. This of course is easier said-than-done.
A further turnaround hinges highly on something AMC’s management has little control over: a further rebound in box office receipts.
Per figures compiled by Statista, don’t count on a post-COVID “return to normal” finally happening this year. For 2024, U.S. box office is expected to remain $1 billion below its pre-pandemic high water mark of $11.36 billion.
To make matters worse, even a better-than-expected box office may result in little improvement to the company’s bottom line. Why? It all has to do with a company-specific issue: AMC’s still-high levels of outstanding debt.
Caught in a Lose-Lose Situation
As discussed in prior coverage of AMC stock, while the company managed to strike while the iron was hot, raising more equity during last month’s “Roaring Kitty” rally, the positive impact of this capital raise was not that significant in the grand scheme of things.
AMC may have raised hundreds of millions in additional cash, but this pales in comparison to its $4.5 billion in outstanding long-term debt.
AMC’s underlying business has once again become profitable on an EBITDA basis. Annualized EBITDA for AMC stands at $385.1 million. Unfortunately, net interest expenses eat up the bulk of this amount.
Depreciation charges eat up the rest, and then some. Hence, AMC remains unprofitable on a GAAP basis.
This is likely to remain so, until the debt issue is further addressed. With this, the company is mired in a lose-lose situation. Raising more equity would enable the company to reduce debt. In turn, lowering interest expenses, paving a path back to GAAP profitability.
However, factoring in shareholder dilution, a mammoth capital raise could water down rather than shore up AMC’s stock price. That said, if AMC decides not to raise more equity, persistent losses will likely keep weighing on shares.
The Verdict: Until AMC Pursues Another Way Out, Stay Out of its Way
Having said all of this, there may be an alternate path for AMC Entertainment to take, that could enable shares to make a meme-less recovery.
That would be a situation where AMC begins using its cash position to diversify out of the movie theater business, and transform into a totally different business entirely.
Although a bit of a long-shot scheme, it may be AMC’s only hope for higher prices. Until then, however, the verdict with AMC is pretty crystal clear. As poor performance continues, and the hopes for additional meme rallies fade, shares will continue to depreciate in price.
AMC stock investors who decide to sit through the end credits could end up feeling like they sat through a bad movie: regretful for wasting their time with this stock.
AMC stock earns a D rating in Portfolio Grader.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.