AMC Entertainment (NYSE:AMC) stock is looking to turn things around after a pandemic-ridden 2020.
The third and fourth quarter is often a critical period for AMC stock, and this year is no different.
However, with the company’s deteriorating financial position and the spike in Covid 19 cases, management appears to be getting ahead with its progress reports.
AMC has an incredibly tough challenge ahead and is unlikely to get the boost it needs from the tail-end of the year.
We saw the birth of “meme stocks” at the start of this year, companies in dire straits that garnered significant retail trading interest.
AMC stock was among them as it grew 527% in value in the past 12-months.
The stock trades at an 87% premium to its average price estimates. With its deplorable fundamentals and weak outlook, AMC stock is a name to avoid.
Box Office Performance and the Delta Variant
As mentioned earlier, the third and fourth quarter is often a lucrative time for theatre companies. It’s marked by the debuts of some of the most highly anticipated films of the year.
So far, though, the results have been lackluster to the say least, which has seriously complicated the potential turnaround strategy for AMC.
The domestic third quarter cumulative gross was at $1.14 billion, representing a 62.5% decline from the balance in 2019.
Box office receipts have dropped sequentially in five of the past seven weeks since peaking with Black Widow’s premiere. Recently-released horror flick Candyman was also a downer in terms of audience count.
The competition from OTT platforms isn’t helping either. Disney released its highly anticipated film, Jungle Cruise, which generated $35 million in its opening weekend at the box office, and it generated virtually the same amount through Disney+.
Investors are also concerned about the pandemic’s fourth wave driven by the Delta variant. U.S. daily death toll has hit 1,500 a day. Moreover, there has been a major spike in cases in the past couple of months.
Despite all these troubles, AMC stock boasts a massive market capitalization of more than $22.5 billion.
AMC’s performance in the first six months of the year has been worrying.
Though its revenues rose roughly 200% in the second quarter sequentially to $296.4 million, it wasn’t without a massive increase in expenses.
For the first six months, it generated $593 million in revenues while its expenses shot up to $1.32 billion. As a result, AMC lost $911.2 million during the first half of the year.
Without sufficient demand, AMC will continue burning through its cash. The company had done well to tap into markets when they were hot, heavily diluting its shareholders.
AMC had 104 million outstanding shares in February this year, but that number rose to 511 million in August.
Despite the dilution, AMC has a huge lifeline. It enabled the company to finish off the second quarter with $1.81 billion in cash. It used $233.8 million of cash in its operational activities and spent $17.9 million on capital expenditures.
Bottom Line on AMC Stock
AMC stock has had an incredible run-up as part of meme stock mania.
Despite the volatility, the stock has continues to grow at an impressive pace. Naturally, this growth is unwarranted and has blown its valuation out of proportion.
AMC’s business outlook continues to be dreary, and its fundamentals are remarkably weak. Its woes have been exasperated by the Delta Variant and the listless box office performance of the top movie releases of the year.
AMC stock has a rough road ahead.
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
Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.