InvestorPlace’s Larry Ramer reported AMC Entertainment’s (NYSE:AMC) first-quarter 2022 results on May 10. AMC beat the analysts’ estimates on both the top and bottom lines. However, the company did little to justify AMC stock continuing to trade in double digits if you look beyond the earnings and revenue beat.
Down more than 3% in early May 11 trading, AMC’s share price is headed to single digits where it traded a year ago. Investors shouldn’t be surprised about the stock’s swan dive. AMC’s troubles run deep, and no amount of spin can change that.
If you’re thinking of buying AMC stock, at least do yourself a favor and wait for it to trade in single digits. Here’s why.
MKM Partners analyst Eric Handler believes that the stock’s valuation is “irrational” despite company initiatives such as delivery and the sale of its own popcorn brand. He’s got a $1 target price and a ‘Sell’ rating on AMC stock. That target price has changed since February 2021.
MarketWatch reported that the analyst is concerned about the lack of mid-level movies getting released. That’s reduced the content volume hitting theaters by 30%.
“…Specific to AMC, it could take many years for the company to grow into its capital structure, which has seen a 400% increase in shares outstanding since the start of the pandemic along with its sizable $5.57 [billion] of debt.”
None of the eight analysts that cover AMC stock have it as a ‘Buy’, with an average target price of $5.76, well below where it’s currently trading.
As I stated in April, the company’s acquisition of 66 screens in Connecticut, New York, and Maryland won’t make AMC a better business. More importantly, the price paid “adds to the company’s significant debt.”
I believe that the company’s diversification strategy of investing in unrelated businesses — it paid $28 million for 22% of Nevada gold miner Hycroft Mining Holding (NASDAQ:HYMC) — will be a colossal failure.
The company should have used its $1.8 billion war chest from issuing shares exclusively to repay debt. At the end of March, it had $1.16 billion in cash on its balance sheet, down from $1.59 billion at the end of December, while its debt was almost $100 million higher at $5.52 billion.
AMC is rightfully going in the wrong direction after earnings. It’s a stinker of a stock.
On the date of publication, Will Ashworth 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.