AMC Entertainment (NYSE:AMC) stock has managed to lose its popular meme stock status and it’s down 44% year-to-date. However, it’s still up 140% in the past year. Now investors are wondering whether the bottom is anywhere near for AMC stock.
My answer to that is not yet.
First, let’s keep a few things in mind when before we take a closer look at whether AMC stock is worth buying now.
I’ve written about AMC a few times in the past. Each time, I’ve cited the meme stock frenzy and AMC’s poor financial performance as reasons for bearishness. I predicted that tough times were ahead for AMC. I even criticized AMC CEO Adam Aron for praising meme investors who bid the stock up. After all, such praise doesn’t represent active leadership by AMC to transform its fundamental problems using a viable business plan.
While some may have ignored this advice, if we look at where AMC stands today, it seems that much of its supporters have abandoned it. The strength of the social media forum that sent AMC stock to nearly $60 a share in June 2021 is no longer there to back it up.
Now trading around $15 per share, the future for AMC doesn’t look so bright.
With that in mind, here’s a deeper dive into why you should still avoid AMC stock despite it reporting upbeat preliminary Q4 2021 financial results.
AMC Beats Estimates in Preliminary Q4 2021 Results
Earlier this month, AMC announced preliminary Q4 2021 financial results that beat analysts’ expectations. Specifically, the Street was expecting revenue of $1.09 billion, but AMC reported preliminary revenue of nearly $1.17 billion. Likewise, Wall Street was expecting adjusted EBITDA of $82.4 million, but AMC announced that it anticipates the figure to be $146.8 million to $151.8 million.
AMC stock soared for a short time on the news.
Signs that fundamentals might be improving should provide support for the stock. In fact, since the start of the pandemic, AMC delivered a milestone of positive free cash flow ($8 million). That’s not much, but it’s still better than the series of negative numbers it experienced for so many years prior.
Breaking down the positive improvements a bit further, Aron stated: “AMC’s 2021 results improved significantly as the year progressed, and we finished the year with the strongest quarter in two years. The fourth quarter of 2021 marks a meaningful milestone with positive EBITDA of more than $145 million, positive Operating Cash Generated of more than $215 million, and a record year-ending liquidity position of $1.8 billion.”
Should investors get excited after this positive news? I do not think so. Here’s why.
Why You Should Still Avoid AMC Stock
For the FY 2021, AMC reported net cash provided by (used in) operating activities of $614.1 million, and free cash flow of $706.5 million. Despite having its strongest quarter in two years, the company expects a net loss in the range of $114.8 to $194.8 million.
There are at least four other important negative key metrics to consider. AMC insiders have only sold shares in the past 3 months. AMC has negative shareholder equity. Shareholders have been substantially diluted in the past year, with total shares outstanding growing by 56.7%. Finally, there is a large debt to pay off: Non-current long-term debt for the first nine months of 2021 was $10.28 billion.
AMC must refinance its debt to save interest expenses, but at the same time, it must return to profitability. Its fundamentals remain very poor, and its valuation — based on stock dilution and negative free cash flow for the past quarters — is not attractive. AMC stock remains overvalued.
Bottom Line on AMC Stock
The revenue surge in preliminary Q4 financial results, along with positive free cash flow and adjusted EBITDA shows that perhaps the worst is over for AMC in this pandemic era.
However, the overall fundamental analysis shows that AMC stock is still too risky and too overvalued. Its profitability needs a lot of improvement, and negative equity remains a big red flag. As such, investors should wait for the next quarters to pass before they’re convinced that its financial improvement is consistent.
On the date of publication, Stavros Georgiadis, CFA 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.
Stavros Georgiadis is a CFA charter holder, an Equity Research Analyst, and an Economist. He focuses on U.S. stocks and has his own stock market blog at thestockmarketontheinternet.com/. He has written in the past various articles for other publications and can be reached on Twitter and on LinkedIn.
