The company has lost nearly 75% of its market value during the past year, seemingly due to meme investors cutting their losses.
I very much like the idea of investing in companies that are trying to turn their operating performance around, and it’s even more appealing to invest in them when their stock is trading below its intrinsic value. I mean, if there’s value on a firm’s balance sheet, you only need cash flow growth to kick in, and you’ll likely see the stock skyrocket.
Furthermore, according to statistical evidence, struggling companies that hold value have the best risk-return prospects. Thus, speculating on a stock such as AMC could really be worth your while.
Why AMC Is a Value Play
Value stocks are statistically sorted by price to book value with a threshold of 1.00. So, considering AMC stock has a price to book value of 0.51, we’d consider the stock undervalued. The sorting concept was initiated by Eugene Fama in 1993 when the researcher discovered that value stocks provide better risk versus return prospects than growth stocks.
Furthermore, AMC’s “value stock profile” could see it benefit from the current market environment. The market is geared toward value stocks as a result of rising interest rates. Investors want intrinsic value rather than growth stories.
In addition, I could see AMC stock reach institutional investors’ radar once more as its business model suits the current “re-opening play” environment.
AMC Entertainment’s operational aspects are back to normal. During its first quarter, the company experienced significant increases in screen count, with U.S. numbers surging year-over-year by 1.19x and international screen count growing by a staggering 7.42x over the same period.
The increase resulted in a quarterly earnings beat of 15 cents per share and a revenue beat of $42.47 million.
Furthermore, there’s much optimism in the air as Top Gun: Maverick continues bolstering cinema visits. The sequel set a box office record on Memorial weekend as it raked in a stunning $124 million from North American theatres during its first three days of broadcasting.
I anticipate the film business to scale rapidly as Covid-19 lockdowns subside, with a lot of the content that was put on hold being released ex-ante.
AMC stock looks good from a quantitative vantage point. First of all, the company’s balance sheet is robust, with 2.25x cash per share illustrating loads of intrinsic value.
Additionally, AMC exhibits a Piotroski F-Score of 5, which suggests that its operational efficiency and financial statements are in decent shape.
The Bottom Line
The company’s reputation as a meme stock has let it down lately, but I firmly believe that its prospects are bright as can be. In my opinion, the stock ticks all the necessary boxes as it displays value in light of re-opening prospects and holds an oversold status.
Lastly, we all need to admit to ourselves that this is a risky bet. Nonetheless, with AMC’s balance sheet characteristics and its potential to generate an abundance of cash flow, you won’t be buying into a “pie in the sky” asset here.
On the date of publication, Steve Booyens did not hold any position (either directly or indirectly) 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.