AMC Entertainment (NYSE:AMC) is now back in bargain territory, which might appeal to value seekers. AMC stock is now down about 51.7% at $24.95 per share from its recent peak of $51.69 on Sept. 13. It might just well be worth looking at again for those who missed its move up earlier this year.
And there really seems to be no good reason for this slump. In fact, as I wrote last month, the world’s largest movie chain is now clearly in a turnaround situation. People are going back to see movies and the company’s cash flow situation seems to be improving.
In fact, the company announced on Nov. 30 that it just had the second biggest day ever in its history. This was as a result of the “fervent response to tickets going on sale for Spider-Man: No Way Home on Monday, Nov. 29.”
That is going to help its fourth-quarter (Q4) numbers greatly. In fact, Dec. 16 was the first day showing for the new Spider-Man movie. My own spot check with movie theaters is that there are big crowds for the flick. As a result, I expect to see really good numbers at AMC Entertainment for Q4.
Where Things Stand at AMC Entertainment
Analysts still expect the company to produce over $2.49 billion in sales this year. That is up significantly from its sales of $1.24 billion in 2020.
Last month when I wrote my last article on AMC stock, I estimated that it was worth $52.16 per share. This was based on a 10% free cash flow margin estimate and analysts’ estimates of sales next year of $4.67 billion. Recently, analysts how lowered their 2022 forecasts just slightly to $4.66 billion.
Nevertheless, that still represents a gain of 87.15% over 2021, a major increase. Keep in mind that in 2019 the company produced around $5.47 billion in sales. So even the 2022 estimate of $4.66 billion is below its peak sales.
But I don’t think that will be hard for the company to catch up to in 2023, two years from now. For example, analysts now foresee 2023 sales of $5.31 billion at this point — very close to the $5.47 peak level in 2019.
What AMC Stock Could Be Worth
AMC now has a market capitalization of $13.1 billion. This puts it on a forward price-to-sales multiple of just 2.68 times sales.
That does not seem very high for a company in a turnaround situation that clearly seems to be working.
For example, we can apply a 10% free cash flow (FCF) margin against its 2022 sales forecast of $4.66 billion. As a result, we get an estimate of $466 million (i.e., 0.10 x $4.66 billion 2022 sales forecast).
Next, if we assume that the market will eventually value AMC stock at a 2% FCF yield, its target market will be significantly higher than today. For example, dividing $466 million in the forecast FCF by 2% will produce a market cap of $23.3 billion.
That represents a gain of 85.6% over its existing $12.55 billion market cap. In other words, that means AMC stock is worth $46.30 per share (i.e., 1.856 x $24.95 price today).
To be even more conservative, we can use a 3% FCF yield metric. That puts its target market cap at $15.53 billion (i.e., $466m/0.03). This is still 23.8% over today’s price and gives it a bare-bones value of $30.26 per share.
What to Do With AMC Stock
So using even our most conservative valuation method, we come up with a value of $30 for AMC stock. I would expect to see that the market will appreciate it once it becomes clear that Q4 sales will be at a record level for the year.
As a result, now might be a good time for patient value investors to begin picking up shares in AMC stock. This will provide a minimum of 23.8% return on investment for investors, with the possibility of much higher gains later next year.
On the date of publication, Mark Hake 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.
Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.
