Despite recent comments from its CEO Adam Aron, AMC Entertainment (NYSE:AMC) remains one to avoid. He would have you AMC stock is truly a pandemic rebound story. That is, one to purchase because it will move higher in the post-pandemic world.
It’s not and it won’t, regardless of how much help his theatres get from Marvel super heroes and 007.
Let’s begin by looking at why he said that, and why you should not put any money behind his assertion.
Self-Proclaimed AMC Stock Sages?
In a statement issued earlier this month, celebrating “a new post-reopening record for weekend attendance,” AMC Entertainment Adam Aron hailed the openings of “Venom: Let There be Carnage” and the latest James Bond entry, “No Time to Die.”
“The success of these two new blockbuster movies, and of our theatres both at home and abroad, demonstrates the huge pent-up demand we see in moviegoers who are ever so eager to return to movie theatres. To the self-proclaimed sages who routinely and mindlessly predict the demise of cinemas, it is my view that it is simply wrong to underestimate the enormous consumer appeal and resilience of movie theatres.”
He’s right, there’s clearly pent up demand for a theater experience among moviegoers. He’s likely also right in claiming that there won’t be a demise overall for movie theaters. They’ll surely continue to exist, after all.
I’m not sure that many so-called sages predict the demise of movie theaters at all. I think there are many who rightly assume that they simply don’t have the traditional appeal they once had.
After all, domestic box office totals from 2009 to 2019 grew by 6.89%. That was much lower than the 41% in box office totals between 2000-2010. Clearly, Aron is also implying that pent-up demand bodes well for the future of his company.
I wouldn’t agree with that notion. It was clear that there were big problems prior to the pandemic onset.
Issues Existed Long Before
I’ll give AMC Entertainment credit for one thing: The company did manage to significantly boost its revenues between 2016 and 2017. Revenues jumped from $3.235 billion in 2016 to $5.079 billion in 2017.
And to the company’s credit, it stayed above $5 billion annually for 2017, 2018 and 2019.
The problem was that the company posted volatile net losses and gains in that same period. It posted a loss of $487.2 million in 2017, then a net gain of $110.1 million in 2018. But then reverted to its bad ways in 2019, posting a $149.1 million loss.
Remember, this was all before Covid-19 affected the world and his moviegoers. Here, AMC CEO Adam Aron is wrong. No one needs to be a sage to understand why AMC stock had been on a steady decline for the prevailing period of several years.
The point here is that it doesn’t make any sense to conflate a strong box office period over the week with the larger picture for AMC. Neither Venom nor James Bond will save the company from its troubles.
The truth is that, yes, the pandemic made things much worse for AMC. The company lost $4.589 billion in 2020. But it isn’t as if the company was financially sound prior to that. Again, it posted losses in both 2017 and 2019.
Right now it’s only being buoyed higher by meme stock pundits.
Buoyed By Nothing
AMC currently carries relatively high short interest, above 17%. Its position as a short squeeze target is its saving grace, not moviegoers sick of being stuck inside and hankering for the taste of Raisinettes.
Unfortunately, Adam Aron has to be aware of that fact. The company lost a lot of money, issued a bunch of stock and will have to deal with that later.
It is only a matter of time before the bottom falls out. Don’t be fooled by the pandemic rebound narrative for AMC stock no matter who says it. Bigger issues including a box office decline spell inevitable trouble for AMC. That doesn’t necessitate its demise, just tougher times.
On the date of publication, Alex Sirois 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.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.
