After AMC (NYSE:AMC) announced on Sept. 26 that it would distribute Taylor Swift’s movie globally and over $100 million of advance tickets were purchased for the film, AMC stock soared 25%. Given that impressive rally, I believe that huge, record-breaking profits for AMC on the film are already baked into the stock. Moreover, the shares are likely to undergo a meaningful “buy the rumor, sell the news” drop sometime soon. Plus, music stars of Swift’s caliber cannot release movies too often.
Additionally, overall movie theater revenue remains far below pre-pandemic levels and that situation is highly unlikely to change over the long term. Also noteworthy is that AMC’s financial results remain unimpressive. The company has a large amount of debt at a time when interest rates are elevated.
Given all of these points, I recommend that investors sell AMC stock.
AMC Stock Is Already Reflecting Tremendous Success for Swift’s Movie
From Sept. 26 through Oct. 10, the S&P 500 rose just 2%, while AMC stock soared about 25%. That tremendous outperformance strongly indicates that many investors are predicting Taylor Swift’s film will break U.S. and overseas records and generate tremendous profits for AMC. Consequently, I do not expect the theater operator’s shares to climb much in the days and weeks ahead.
Moreover, as often occurs when shares rise a great deal in anticipation of favorable news, AMC stock is likely to retreat as more favorable information about Swift’s film is released. This phenomenon affects stocks so often that it earned an expression: “Buy the rumor, sell the news.”
AMC’s Future Still Looks Pretty Bleak
Before the pandemic, movie theaters were far from thriving, as streaming, greatly intensifying the theme that began decades before with DVDs and VCRs, had already greatly diminished theaters’ profitability. But during the pandemic, streaming became much more popular, and huge amounts of content became available via internet-based TV. Moreover, Americans became very much used to staying home and watching movies instead of going to theaters.
As a result, theaters’ popularity remains far below pre-pandemic levels. In 2018 and 2019, theaters’ annual revenue came in at over $11 billion. In 2022, they generated sales of $7.37 billion. And if one factors in inflation, the decline gets even more pronounced.
While the new idea of showing highlights from top singers’ concert tours could improve AMC’s top line by 10% to 20%, the concept is unlikely to enable the company to boost its revenue to pre-pandemic levels. That’s especially true when taking inflation into account. Even in 2019, AMC lost $149 million.
One important factor to remember is that Swift is probably the world’s top singer at this point, and only a few other vocalists have anywhere close to her level of popularity. Plus, these singers don’t go on tour very often. Given these points, concert films are unlikely to really change the equation for AMC and AMC stock.
AMC’s Huge Debt Load Remains Problematic
As of the end of the second quarter, AMC owed $9.5 billion and had only $435 million of cash. What’s more, its operating cash flow during the 12 months that ended in June came in at -$460 million.
As a result of these points, in tandem with today’s elevated interest rates, AMC will likely have to continue selling more stock to stay afloat, putting continual downward pressure on its shares.
Indeed, the firm just sold $325.5 million of its stock last month.
On the date of publication, Larry Ramer did not hold (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.
